What is the meaning of “responsible credit”? While the third draft of a new neo-liberal draft of a “Consumer” Credit Directive which in its initial goals has replaced consumer protection by enlarged markets speaks about responsible lending the new Coalition has chosen the motto “responsible credit”. Instead of excluding poor consumer from credit as seemingly credit unworthy the initiators assume that credit should be available for all in order to use their future income for necessary and productive present investments. Credit has become just as important as labour. It makes labour income available especially for those who have not safety net of savings.
But many consumer credit agreements lack the necessary transparency, and involve terms and conditions that are at best confusing and at worst, deliberately misleading to consumers. Prices exploit different risks in order to convene usuriously high interest rates, earn provision up to 50% of the premium from unnecessary insurance and burden those with general risks repay their credit properly only because they are poor. These agreements often involve multiple firms, and anticipate that consumers will pay additional fees for unforeseen contingencies. Many also require the purchase of linked services, misuse social hardship for revolving credit schemes with ever higher cost and profit from the dependency of those who have little choice left.
The consequences for consumers who are unwilling or unable to pay attention to these details can be devastating. The visible result are rates of overindebtedness between 4 and 8% of family households in Europe. Increasing exclusion from ordinary bank services up to 17% of households in some countries mirror the creation of a special poverty market without hope and economic progress for those who are imprisoned in its structure of offer and demand.
Responsible credit requires a life long adaptation of existing credit relations by lenders, borrowers as well as public advice agencies and social welfare to the needs of the families. The EU, in article 152 of the Maastricht treaty acknowledges that the State must guarantee a high level of consumer protection and must actively oppose social discrimination. If the EU comes to see its primary goal as opening markets for the most influential (and sometimes also the most unscrupulous) lenders, without respect for national culture in credit regulation and morality, it will be seen as a threat to the idea of a unified Europe. The Scandinavian countries are known for their respect for social justice and coherence. The initial signataiers of the ECRC solicit their membership and their cultural contribution to the upcoming discussion between responsible suppliers and consumer activists. The Finnish presidency who last time already supported the idea of financial services as a service of first necessity could play a key role.
Udo Reifner, director Institute for Financial Services, Hamburg
Damon Gibbons, chairman Debt on Your Doorstep, UK
The European Coalition for Responsible Credit
After ten national conferences on responsible credit the final Brussels conference in April 2006 saw the launch of the European Coalition for Responsible Credit (ECRC). Representatives of non-governmental organisations, and academic institutions from over 20 countries participated. The U.S National Community Reinvestment Coalition (NCRC) also participated and together these organisations now constitute a new international coalition. A number of principles in full details can be found at the Coalition’s website – www.responsible-credit.net