Reckless Lending within the Post-Crisis period: may be the EU Consumer Credit Directive Fit for the Purpose?

July 17, 2021

Reckless Lending within the Post-Crisis period: may be the EU Consumer Credit Directive Fit for the Purpose?

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

A lot more than 10 years following the outbreak associated with the international financial meltdown, customers throughout the EU have already been increasing their standard of financial obligation when it comes to both amount and value of credit rating items. 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 among the reasons for this trend are the low interest rate environment. These developments provide brand new dangers to customers and pose brand brand brand new challenges for regulators with regards to how exactly to deal with them. This informative article is designed to discover the problematic areas of credit rating supply into the post-crisis environment that is lending the EU also to evaluate from what extent the 2008 credit rating Directive presently in effect, which is designed to guarantee sufficient customer security against reckless financing, is fit because of its function 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. In addition it reveals some essential restrictions regarding the customer Credit Directive in supplying sufficient customer security 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.


Significantly more than ten years after the outbreak associated with worldwide crisis that is financial customers over the European Union (EU) have now been increasing their amount of financial obligation with regards to both amount and worth of credit rating services and products (European Banking Authority 2017, pp. 4, 8). On the list of known reasons for this trend will be the low interest environment, the novel business techniques of lenders targeted at finding new income sources, such as for instance costs and costs on loans, therefore the revolutionary company models rising in an extremely electronic market, such as for instance peer-to-peer financing (P2PL) (European Banking Authority, 2017 pp. 4, 8). These developments provide new dangers to customers and pose new challenges for regulators when it comes to simple tips to address them. The issue of reckless credit lending deserves unique attention in this context. Such financing may cause unsustainable degrees of overindebtedness leading to major customer detriment. In addition, it may possibly be troublesome towards the functioning regarding the EU’s market that is single economic solutions.

The main little bit of EU legislation presently regulating the supply of credit rating – the 2008 Consumer Credit Directive Footnote 1 –aims at facilitating “the emergence of a well-functioning interior market in consumer credit” Footnote 2 and ensuring “that all consumers ( … ) enjoy a top and comparable amount of protection of these interests,” Footnote 3 in specific by preventing “irresponsible financing.” Footnote 4 This directive, which goes back into the pre-crisis duration, reflects the data paradigm of customer security therefore the corresponding image regarding the “average consumer” as a fairly well-informed, observant and circumspect star (Cherednychenko 2014, p. 408; Domurath 2013). The theory behind this model would be to increase the customer decision – making process through the guidelines 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 regarding the economic crises, nonetheless, severe issues have now been raised concerning the effectiveness for the information model in ensuring sufficient customer protection against reckless financing methods additionally the proper 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 overview of the buyer Credit Directive planned for 2019 provides the opportunity to mirror upon this matter.

From this history, the goal of this short article is twofold. First, it seeks to locate the problematic components of credit rating supply into the post-crisis lending environment across the EU. Next, it tries to evaluate as to what extent the 2008 credit Directive is fit for the function today so far as the buyer security against reckless financing methods can be involved. The analysis commences by having a exploration regarding the basic meaning of “responsible lending” when you look at the context of customer credit—that is, unsecured credit given to individual, home, or domestic purposes. Building upon the contours of this notion of accountable financing who has emerged with this quest, along with the outcomes of the empirical research carried out because of the writers, this article afterwards identifies the absolute most imminent reckless lending methods into the credit areas throughout 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 to what extent the buyer Credit Directive acceptably addresses the situation of irresponsible financing and analyses customer security requirements and their enforcement inside the broader EU framework that is regulatory credit rating. The latter also contains a quantity of horizontal EU measures, in specific the unjust Contract Terms Footnote that is directive 6 the Unfair Commercial techniques Directive. Footnote 7 This analysis reveals some crucial limits associated with current EU framework that is regulatory credit rating, in specific that of the Consumer Credit Directive, in supplying adequate customer security contrary to the reckless financing techniques previously identified. The writers conclude by providing tentative suggestions for enhancement and distinguishing areas for further research.