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Reckless Lending into the Post-Crisis period: may be the EU Consumer Credit Directive Fit because of its Purpose?

Reckless Lending into the Post-Crisis period: may be the EU Consumer Credit Directive Fit because of its Purpose?

Abstract. A lot more than ten years following the outbreak of…

Significantly more than ten years following the outbreak associated with international crisis that is financial customers throughout the EU have now been increasing their degree of financial obligation with regards to both amount and worth of credit rating services and products. On the list of grounds for this trend will be the low interest environment, the novel business methods of lenders targeted at finding brand new income sources, such as for instance costs and fees on loans, while the revolutionary company models growing in an extremely electronic market, such as for example peer-to-peer financing. These developments provide brand new dangers to customers and pose brand new challenges for regulators with regards to just how to deal with them. This short article aims to discover the problematic facets of credit rating provision into the post-crisis lending environment across the EU also to evaluate as to what extent the 2008 credit rating Directive currently in effect, which is designed to guarantee sufficient customer security against irresponsible financing, is fit because of its purpose today. The article explores the general meaning of “responsible lending” with emphasis on consumer credit, identifies the most imminent irresponsible lending practices in the consumer credit markets, and tentatively analyses their key drivers in this context. Moreover it reveals some crucial restrictions of this customer Credit Directive in supplying consumer that is adequate against reckless lending while offering tentative suggestions for enhancement. The time now seems ripe for striking a different balance between access to credit and consumer protection in European consumer credit law in the authors’ view.

Background

Significantly more than a decade following the outbreak for the international crisis that is financial customers throughout the European Union (EU) have already been increasing their standard of debt in regards to both amount and worth of credit rating services and products (European Banking Authority 2017, pp. 4, 8). The novel business practices of lenders aimed at finding new revenue sources, such as fees and charges on loans, and the innovative business models emerging in an increasingly digital marketplace, such as peer-to-peer lending (P2PL) (European Banking Authority, 2017 pp. 4, 8) among the reasons for this trend are the low interest rate environment. These developments provide brand brand new dangers to customers and pose brand new challenges for regulators when it comes to just how to deal with them. The situation of irresponsible credit lending deserves attention that is special this context. Such lending may cause unsustainable quantities of overindebtedness causing major customer detriment. In addition, it might be disruptive towards the functioning of this EU’s market that is single monetary solutions.

The main bit of EU legislation presently regulating the supply of credit rating – the 2008 customer Credit Directive Footnote 1 –aims at facilitating “the emergence of a well-functioning interior market in consumer credit” Footnote 2 and ensuring “that all customers ( … ) enjoy a top and comparable degree of security of these interests,” Footnote 3 in specific by preventing “irresponsible financing.” Footnote 4 This directive, which goes back towards the pre-crisis duration, reflects the knowledge paradigm of customer security while the matching image regarding the consumer that is“average as a reasonably well-informed, observant and circumspect star (Cherednychenko 2014, p. 408; Domurath 2013). The theory behind this model is always to increase the customer decision – making process through the principles on information disclosure directed at redressing information asymmetries between credit organizations and credit intermediaries, regarding the one hand, and customers, regarding the other. Especially in the aftermath associated with monetary crises, but, severe issues have already been raised concerning the effectiveness associated with information model in ensuring consumer that is adequate against reckless financing methods while the appropriate functioning of retail economic areas more generally speaking (Atamer 2011; Avgouleas 2009a; Domurath 2013; Garcia Porras and Van Boom 2012; Micklitz 2010; Nield 2012; Ramsay 2012). The report about the buyer Credit Directive planned for 2019 provides the opportunity to mirror upon this dilemma.

From this back ground, the goal of this short article is twofold. First, it seeks to locate the problematic components of credit rating provision into the post-crisis environment that is lending the EU. Next, it tries to evaluate from what extent the 2008 credit rating Directive is fit because of its function as far as the consumer protection against irresponsible lending practices is concerned today. The analysis commences with a research regarding the basic meaning of “responsible lending” when you look at the context of customer credit—that is, unsecured credit given to individual, household, or domestic purposes. Building upon the contours associated with notion of accountable financing which includes emerged with this quest, along with the outcomes of the study that is empirical because of the writers, the content online payday OH afterwards identifies the absolute most imminent reckless financing techniques within the credit rating areas over the EU and tentatively analyses their key motorists. The empirical study involved several semi-structured interviews with the representatives of the consumer organizations and national competent authorities aimed at verifying the preliminary findings and obtaining further information on the problematic aspects of consumer credit, both in old and new Member States in addition to the desk research. Footnote 5 the content then proceeds to look at from what extent the buyer Credit Directive acceptably addresses the difficulty of reckless financing and analyses customer security criteria and their enforcement inside the broader EU regulatory framework for credit. The latter also contains a quantity of horizontal EU measures, in specific the unjust Contract Terms Directive Footnote 6 and the Unfair Commercial techniques Directive. Footnote 7 This analysis reveals some essential restrictions regarding the present EU regulatory framework for credit rating, in particular compared to the buyer Credit Directive, in supplying sufficient customer security up against the irresponsible financing methods previously identified. The writers conclude by providing recommendations that are tentative enhancement and distinguishing areas for further research.

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