EC Public Hearing on “Responsible Lending and Borrowing”
15/09/2009
Following the European Commission’s Consultation on Responsible Lending and Borrowing in the EU, a Public Hearing has been held in Brussels to consider how to move forward on policy in this area.
Attendees from across the EU gathered for discussions on consumer product selection, the role of intermediaries and non banks, and assessing suitability and creditworthiness, in addition to speeches by the Internal Market and Services Commissioner and the Commissioner for Consumer Affairs.
A Public Hearing has now followed up the EU Consultation on Responsible Lending and Borrowing which closed at the end of August.
The Consultation on Responsible Lending and Borrowing gathered initial opinions on specific areas including product design and suitability (including affordability) and whether lenders should be providing advice and product risk indications to consumers. More detail provided in Industry Minute at the time can be viewed here. Simultaneously, the European Commission sought to gather views on the Report of the Expert Group on Credit Histories, recognising the central role of account performance information in responsible lending – as we describe further here.
Discussions at the Hearing were wide ranging but key speeches by the Internal Market and Services Commissioner and the Commissioner for Consumer Affairs offer a flavour of the EC’s perceptions - and intentions - in this area.
The opening address by Charlie McCreevy, the European Commissioner for Internal Market and Services, expressed that although the non availability of credit is currently likely to be perceived as the larger problem, this cannot be expected to continue indefinitely. He saw responsible lending and borrowing as having a key part in acting to restore consumer trust in the financial system, particularly mentioning the responsibilities of intermediaries towards consumers. It was confirmed that a large number of responses had been received to the Consultation, which crystallised interest from a wide range of parties.
A report on the work being undertaken across Europe by both government agencies and lenders to protect consumers from repossession is expected by year end. The Commissioner echoed the view of the OFT as expressed in its recent draft Irresponsible Lending Guidance, saying that:
“When we refer to responsible lending, we do not just mean the period up to the signing of a credit contract. It is equally important that lenders have a responsible attitude to the management of their relationship with borrowers on an ongoing basis.”
The role of the borrower was also recognised, with Mr McCreevy flagging that “Many people took out loans based on self-deception”. He stated that “financial regulation is no substitute for financial education” although also, more worryingly, that “rules and regulation carry much more appeal for many career bureaucrats”.
Meglena Kuneva, the Commissioner for Consumer Affairs, expressed her belief that:
“it is our duty to open our eyes to the vicious mechanisms that have generated the irresponsible lending and borrowing that is now financially hurting a good number of our citizens”
Ms Kuneva discussed the step forward towards responsible lending set to be delivered by the transposition of the Consumer Credit Directive into national law. Conversely, she raised serious concerns about delivery of financial advice across the EU, especially remuneration structures.
The Commissioner also announced the launch of a study into how consumer choice operates in financial markets - to include consumer attitudes to simplified and standardised products which she advocates “seriously examining” in order to offer a default option to consumers.
The full text of the speeches and additional coverage of the Hearing can be accessed here.
The Commission will now consider the input received from the two Consultations and Hearing, to reach what Jörgen Holmquist, Director General, DG Internal Market and Services, described as “an informed decision on the best way forward” with a promise of “openness and transparency throughout the process”.
Callcredit welcomes the commitment of the European Commission to fully analyse response before taking any further steps. The effect of the Consumer Credit Directive should also be considered before any new initiatives should be embarked upon. In the UK’s case, efforts to address the likely requirements of the draft Irresponsible Lending Guidance must surely also be taken into account.
Commissioner Kuneva’s comments on simplified products will raise concerns for many. The Expert Group on Credit Histories recognised the extent of the diversity in credit markets that exists between member states in the EU. So, how might standardisation of products be effected, without risking a ‘white elephant’ compromise unlikely to suit very many consumers? And could guiding consumers to a one size fits all solution really offer them true choice to meet their needs?
On one point there is certainty: while responsible lending measures may take a while to define, the perceived requirement for action is unlikely to go away. Creditors who take action now to protect reputation and relationships through improving affordability assessment in borrowing, and to proactively identify and assist consumers in difficulty, will stand to benefit in the future.
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