16.2.2008   

EN

Official Journal of the European Union

C 44/74

1.1

In the absence of any Community guidance in this area, the various Member States have developed their own national legal systems for preventing individuals and families from falling into over-indebtedness, processing the cases of those who do, helping them get out of debt and providing them with support.

1.2

Faced with the worrying growth of this phenomenon in recent decades and taking particular account of the European Union's enlargement and the recent deterioration in the situation globally, the EESC — which has been closely following developments in this area for quite some time, as well as the social consequences of over-indebtedness in terms of exclusion, social justice and obstacles to the completion of the internal market — has decided to reopen public debate on this matter with civil society and the other Community institutions. The Committee's intention is to identify and implement Community measures aimed at precisely defining, monitoring and dealing with the problem in all its different aspects — social, economic and legal.

1.3

The diversity of the systems established in the countries that have developed them, not just in Europe but also in the rest of the world, together with the fact that some countries do not have any such systems, is encouraging the development of ‘unequal’ opportunities, creating social injustice on the one hand, and distortions in the move towards completion of the internal market on the other; all of this warrants urgent, proportionate action by the European Union, for which the necessary legal basis exists in primary law.

1.4

This opinion reviews the main issues raised by the phenomenon of over-indebtedness, weighs up the solutions found at national level, describes the difficulties encountered and errors detected, assesses the overall scale of the problem and reflects on gaps in knowledge and shortcomings in the methods used. The opinion also seeks to identify approaches and pinpoint areas for possible action at Community level.

1.5

The opinion even goes so far as to suggest that a European Indebtedness Observatory be set up to monitor developments in the phenomenon at European level, providing a forum for dialogue between all the parties concerned, and proposing and coordinating measures to prevent and limit it, then assessing the impact thereof.

1.6

The Committee is aware, however, that coordinating steps of this nature and scope can only be achieved if the Commission, European Parliament and Council — in close dialogue with organised civil society, representing the bulk of those concerned by the issue (families, workers, consumers, financial institutions, etc.) — decide to make this a priority for action.

1.7

Recent indications of the Commission's thinking on this matter are therefore to be welcomed and it is strongly recommended that the necessary follow-up be given in terms of basic research, consultations and legislative and other relevant proposals, starting with the publication of a Green Paper defining and identifying the terms of the issue and giving a voice to all the parties concerned, by means of extensive public consultation.

1.8

Furthermore, the EESC calls on the European Parliament and the Council to take on board the major concerns that this opinion attempts to address on behalf of civil society and make them a priority in their respective political agendas.

2.1

Credit has undeniably enabled people in Europe to improve their quality of life and access essential goods and services which would otherwise have been beyond their reach or only affordable after a considerable length of time, such as their own homes or means of transport. Nevertheless, if the conditions under which credit is provided are not sustainable — if serious employment problems arise, the monthly burden of debt exceeds a reasonable proportion of available monthly income, too many loans have been taken out or there are no savings to help tide people over times when they have no income — credit can lead to situations of over-indebtedness.

2.2

In fact, the problem of over-indebtedness and its social consequences is not new. Its origins might even be glimpsed as far back as times of Classical Antiquity, more specifically the agrarian crisis suffered by Greece in the VIth century BC and Solon's measures (594/593 BC), first of all to write off the debts of farming small-holders who had been reduced to slavery and sold off, and then to free these people and reintegrate them into Athenian society and productive life as free citizens (1).

2.3

However, there is no doubt that nowadays this phenomenon is becoming increasingly widespread and assuming worrying proportions. People are becoming more aware of it as a social problem in a society hallmarked by sharp contrasts, where discrepancies continue to grow and solidarity is much less in evidence.

2.4

It is against this background that the question of banking exclusion is to be seen, denoting the marginalisation of those who, for various reasons, are prevented from having access to basic financial services (2).

2.5

This opinion seeks to pinpoint the main causes of this problem, its scale, the remedies most frequently brought to bear and the reasons for seeking a solution at Community level.

3.1.1

According to the Eurobarometer Report of February 2007 (3), around 25 % of Europeans feel that they are at risk of sliding into poverty and 62 % believe that this is something that could happen to anyone, at any time of life.

3.1.2

Data from the European Commission's 2007 Joint Report on Social Protection and Social Inclusion indicate that in 2004, 16 % of the EU15 population lived below the poverty line, which is set at 60 % of the average income of each country (4).

3.1.3

In qualitative terms, poverty corresponds to a lack or inadequacy of material resources for meeting the vital needs of an individual; this is the most visible aspect of social exclusion, which pushes the individual back out to the margins of society, thus generating feelings of rejection and self-exclusion.

3.1.4

The extent and form of social exclusion depend, in each country, on a number of variables such as the social security system, the way the labour market operates, the justice system and informal solidarity networks. Immigrants, ethnic minorities, the elderly, children under 15, people on low incomes with few educational qualifications, people with disabilities and the unemployed are the most vulnerable to poverty and social exclusion.

3.1.5

In most European countries, consumer trends indicate a relative fall in spending on foodstuffs, drink, tobacco, clothing and footwear, and a relative rise in expenditure on housing, transport and communication, health services, culture and other goods and services such as health care, tourism and hotel and catering services (5).

3.1.5.1

This new distribution in household spending tends to be reflected in the use of credit. Consumer credit in the broad sense of the term, which includes the purchase of both consumer goods and housing, is nowadays closely linked to new patterns of consumption and closely follows the ups and downs of developments in these patterns. Thus, the increased share of spending on domestic utilities, transport and travel (6) frequently involves payment by credit.

3.1.5.2

Another factor encouraging the increase in consumer credit is the fact that a) the latter has lost its negative connotations of poverty and guilt in respect of the way that people lead their lives or manage their businesses, mainly in countries where people are predominantly catholic, as compared to protestant, in upbringing, and b) it has become quite common, especially in the big cities. Pushy, systematic advertising by financial bodies to attract new clients is encouraging more people to take out loans. In addition, consumer credit confers status and makes it easier to camouflage people's social background, allowing them to adopt a lifestyle characteristic of a class higher than their own. For many families, credit is a common way of managing a household budget (especially using credit cards), where the risks are known; however not enough information is provided on these risks or on the effective solutions to the problem, and even the extent of the risks has not yet been properly quantified.

3.1.6

These determining social and cultural factors are also underpinned by economic and social ones such as the sharp drop in interest rates over last decade, the fact that people have a lower propensity to save and persistently low unemployment rates, all combined with economic growth (despite the crisis of the late nineties which nonetheless did not assume the same proportions as previous such crises). On top of this has come deregulation, which targeted the whole of the credit market from the late seventies and early eighties onwards (7), triggering a rapid expansion in the scale and number of credit providers, including some not subject to monitoring and financial supervision, together with an increase in competition between them, all leading to a depersonalisation of the bank-customer relationship.

3.1.7

These factors together have all meant that European society is becoming increasingly dependent on credit being granted for people's key needs to be met. The growing extent of indebtedness in most Member States clearly illustrates this fact (8).

3.1.8

If credit is taken out on a sustainable basis — where there are no serious employment problems, where the share of monthly debt payments as part of monthly disposable income is not excessive, where the number of loans taken out is not high and where there are some savings to tide people over occasional periods without income — it can help people improve their quality of life and allow them access to essential goods and services which they could not otherwise afford, or only after a long time, such as housing and private cars.

3.1.9

Nevertheless, the prospect of something going wrong in private or family life, causing financial commitments not to be met at a particular moment, is a risk run by everyone signing a credit contract. Thus, normal, controlled indebtedness can for a variety of reasons become uncontrolled over-indebtedness.

3.2.1

Over-indebtedness refers to situations where the debtor is unable to pay all his debts on a long-term basis, or where there is a serious risk that this might be the case when the debts fall due (9). Nevertheless, the precise terms of this concept vary considerably from country to country in the EU, and its definition at European level is still lacking (10). The recent European Commission initiative to commission a study on this subject is therefore to be welcomed (11).

3.2.2

Not only is the concept in itself ambiguous and its definition not straightforward, there are also several different ways to measure over-indebtedness. Thus, in a study commissioned by the European Commission (12), there were three different formulas or models devised for measuring over-indebtedness: the administrative model (13), subjective model (14) and objective model (15).

3.2.3

One of the main difficulties in assessing the scale of over-indebtedness in Europe relates to the lack of reliable statistics, and the fact that is impossible to draw comparisons with existing data, given the different methods, concepts and time periods applied. This is one area to which the Commission should devote more attention, carrying out the studies needed to obtain and process reliable, comparative data.

4.1

The numerous sociological studies carried out in the various Member States have pinpointed the following main causes of over-indebtedness:

Sociological analysis of the phenomenon thus indicates that there is a predominance of passive causes, although it should be pointed out that in some countries, bad financial management has also been recognised as being at the root of the problem (16). This suggests that individuals encounter difficulties in managing their budgets in a careful, sustainable fashion (17).

4.2

Financial exclusion is normally reflected in difficult or denied access to the basic financial services market, namely for opening a current account, using electronic means of payment, being able to make bank transfers and taking out insurance for credit protection.

4.3

Such financial exclusion includes, a fortiori, difficult or denied access to low-cost loans enabling the purchase of essential goods and services for a family household (house, domestic appliances, transport and education), a self-employment start-up, or the management of a small one-person or family business.

4.4

Nowadays, access to a bank account, to certain forms of credit and electronic transfers between accounts is an essential pre-condition for accessing key goods and services. Employment, a small business, a house to live in, house fittings, transport, information and even food, clothing and leisure all require access to credit and banks — the latter thus bearing a special social responsibility for providing something almost akin to a public service.

4.5

It is here that the line becomes blurred between a growing and increasingly impoverished middle class and those who are definitively excluded, homeless, beggars, and those dependent on charity. It is precisely at this threshold of poverty that the prevention of over-indebtedness makes sense, together with ways to deal with and recover from it, and also to prevent those who are socially and economically surviving or recoverable from falling irreparably into a cycle of poverty and social exclusion.

a)

More complete and widely available information on financial services in general, their costs and the way in which they operate.

b)

Financial education, included from an early stage in school curricula and other areas of education and training, such as lifelong learning processes reflecting the needs and skills of the individuals it aims to assist, which can be varied throughout life cycles and in keeping with the culture, values system, socio-demographic and economic characteristics, consumer standards and indebtedness of those concerned. It is worth highlighting the fact that in some Member States, the ‘media’ and in particular television, with its public service remit, have — with the cooperation of consumers' associations and the financial institutions themselves — broadcast programmes to raise awareness of the issues of credit and indebtedness, often at peak viewing hours. Moreover, adult education structures, like those provided in some countries by family education centres, should be used.

c)

The creation or extension of financial advice networks that help people to a) manage their budget in a balanced way, b) choose the best options for financing their purchases ensuring that the balance of information is not skewed towards the financial institutions and c) draw up sustainable repayment plans by means of simulations before credit is granted.

d)

Incentives to save (such as tax breaks and social and educational incentives), which would be a household's first line of defence when faced with financial difficulties. Such incentives could also act as a counterbalance to aggressive publicity advertising credit.

e)

The use of credit scoring systems, whether these are credit institutions' own systems or contracted out to specialist companies, in order to assess clients' credit risks. This enables the lender to gauge the risk of insolvency by assessing a whole series of variables and setting objective limits for individual and household debt (18).

f)

The guarantee of proper pensions, early retirement provision and other social benefits for people outside the labour market, incorporated into effective social security schemes by the public authorities, as an essential condition for ensuring that those unable to access private pension funds are not excluded from society (19).

g)

Access to basic insurance for securing credit as a means of protecting against financial risk (20).

h)

Social credit, microcredit and affordable credit

Schemes such as microcredit, credit unions, savings banks, the German and Dutch social funds, post office banking and social credit are, alongside other schemes starting up in the Member States, examples to bear in mind for people at risk of exclusion who are seeking affordable credit. Microcredit, for example, has helped finance small businesses and self-employment, enabling some of the unemployed to re-enter the labour market and start some economic activity again. It is recommended that the financial institutions provide specialist assistance (in management, accounting, commerce, etc.) to help the beneficiaries of microcredit to manage their activity, a practice already being adopted in a number of cases (21).

i)

Responsible lending, which requires credit institutions to pay greater attention to the needs and situations of their individual borrowers, to find the financial instrument most appropriate to each one's circumstances, and even to deny further credit where there is imminent risk of over-indebtedness (22).

j)

Credit history files

The use of databases containing either customers' entire financial histories (positive credit history files) or just their repayment problems (negative credit history files) helps credit institutions ascertain customers' levels of indebtedness and provide a sounder basis on which to grant loans. This is despite the acknowledged risks, in particular relating to positive credit history files, in terms of privacy protection, and the fact that such files provide no help where there is passive indebtedness, a) since it is impossible to predict what might cause similar situations in the future and b) because they take no account of other, non-financial debts (for example, debts relating to essential services and the payment of taxes).

k)

Self- and co-regulation, leading to the establishment of Codes of Conduct by financial bodies, specifically in partnership with consumer protection organisations, can help prevent some abusive practices and instil a more socially responsible approach on the part of credit institutions. This type of measure is also useful for improving the monitoring of debt collection agencies' activities, helping to regulate the way in which debtors are dealt with, as a complement to a rigorous, effectively implemented legislative framework.

l)

Prevention of abusive credit practices

Some national authorities, consumer protection organisations, other NGOs and the credit institutions themselves have agreed rules and procedures to prevent the use of a number of predatory and usurious practices that threaten the most disadvantaged members of society. These practices include, for example, extremely high interest rates on credit granted over the telephone or mobile telephone, credit contracts, of which the customer is unaware, tied to contracts for a specific purchase, sale, or the provision of services, the granting of credit to acquire stock market shares, sometimes involving shares issued by the same bank as the one granting the loan, draconian penalty clauses, credit cards and store cards providing easy access to credit, the demand for surety and at the same time personal guarantees (collateral) for low-value consumer credit contracts, incomplete or not fully accurate information and advertising targeting young people. In addition to the beneficial aspects of responsible credit provision, measures of this nature help reduce distortions in competition on the market and promote social responsibility amongst credit institutions.

m)

Monitoring advertisements for credit

Although advertising is a legitimate strategy for promoting financial products, the way in which these products are advertised calls for close monitoring by the public authorities. The content, vehicles and techniques of advertising should be subject to strict, harmonised regulation that does not leave consumers with the idea that credit is risk-free, easily accessible and without cost. Schemes for self- and co-regulation and good business practice should also be encouraged in this field. These schemes should give borrowers complete clarity as to the conditions of the loan and place a particular responsibility on lenders towards people who, because of mental impairment, are not in a position to appreciate the consequences of entering into a debt agreement.

5.2.1

The fresh start model , which originated in North America and has been adopted in some European countries, is based on the principles of immediately liquidating a debtor's non-exempt assets and writing off unpaid debts, except those that cannot legally be written off. This model is based on the concept of limited debtor liability, on sharing risk with the creditors, on the need to return the debtor as quickly as possible to economic activity and consumption, and on clearly not stigmatising the bankrupt individual (23).

5.2.2

The re-education model, used in some European countries, is based on the idea that the debtor has failed and should be helped, but not simply be exonerated of the duty to fulfil his or her obligations (pacta sunt servanda). This model, based on the idea of the ‘guilt’ of the bankrupt individual — whether the failure results from a lack of foresight or from plain negligence — centres on the renegotiation of debts with the creditors, with the aim of securing agreement on a general repayment plan. This plan can be negotiated through the courts or extrajudicially; what is important is the role played by the debt advisory and mediation services (24).

6.1.1

This is not the first time that the issue of over-indebtedness has been addressed at Community level or even from a Community perspective, within the EU institutions. On 13 July 1992, in its resolution on future priorities for the development of a consumer protection policy, the Council considered studying over-indebtedness as a priority for the first time. Since then, however, although the phenomenon of over-indebtedness has been becoming increasingly serious in the various Member States, resulting in most of them adopting specific legislative and administrative measures to deal with it, the question of a Community-level approach has been all but forgotten.

In May 1999, the EESC decided to reopen the debate on the issue, first drawing up an information report on ‘Household over-indebtedness’, followed by an own-initiative opinion on the same subject in 2002; the reader is referred to the comments and recommendations contained therein (25).

6.1.2

In fact, while the Committee was drawing up these documents, the Luxembourg Consumer Affairs Council of 13 April 2000 took a fresh look at the issue and drew the Commission's and Member States' attention to the need for Community harmonisation in this field. Following this, the Council adopted its Resolution on consumer credit and indebtedness (26), in which, noting the rapid growth of the phenomenon, it urged the Commission to take steps to plug the gaps in information on the real extent of over-indebtedness in Europe and to examine thoroughly the possibility of harmonising measures to prevent and deal with cases of over-indebtedness (27).

6.1.3

It should be pointed out that the Commission has not to date fulfilled its brief from the Council. It only mentioned the issue of responsible credit provision (28) briefly in its initial proposal to review the Consumer Credit Directive (2002) (29). These references disappeared, however, from its final version (2005) (30), confirmed under the German presidency (31). This situation suggests that in the field of consumer credit, it will be difficult for the Commission ever to adopt any new measures to prevent or even deal with over-indebtedness (32).

6.1.4

Recent references in some Commission documents, albeit few and far between, and even in statements by the Commission President, do appear, however, to express a possible shift towards paying closer attention to the phenomenon (33).

6.1.5

In view of its importance, particular reference should be made to the Council of Europe Resolution adopted by European Ministers of Justice on 8 April 2005, on ‘seeking legal solutions to debt problems in a credit society’ (34), which, whilst expressing concern at the ‘easy access to credit that can in some cases result in the over-indebtedness of households creating social exclusion of individuals and their families’, clearly opens the way to preparing ‘an appropriate instrument defining legislative and administrative measures, and proposing practical remedies’ (35).

6.1.6

Furthermore, renewed awareness of the problem appears to have been stimulated by recent academic studies (36) and others specifically requested by the Commission (37), having been the subject of recent public remarks by certain Heads of State and ministers from some Member States (38).

6.2.1

The EESC has long argued and is now again stating that Community-level action in this field is not only possible and desirable, but is actually necessary and even urgent.

6.2.2

The EESC is not unaware that, under the terms of the Treaty and following the failure to adopt the constitutional text (39), the purely social aspects of over-indebtedness as a cause of social exclusion do not fall within the EU's specific remit.

6.2.2.1

Nevertheless, various provisions of the Treaties on European Union and establishing the European Community stipulate both shared powers and actions and measures to back up and encourage Member States' policies in this area (40), which it is up to the Commission to secure and develop.

6.2.2.2

It should be added that some areas for potential action at Community level are now covered by the third pillar, coming under cooperation in judicial matters (41).

6.2.2.3

Lastly, it is the completion of the internal market itself, now unequivocally geared to the general public and consumers (42), which requires and warrants the harmonisation of certain aspects relating to over-indebtedness, and its social repercussions, prevention and management at Community level, as a means of preventing distortions in competition and obstacles to the smooth operation of the market.

6.3.1.1

Steps to achieve harmonisation should primarily involve defining the concept and qualitative and quantitative parameters of the phenomenon in order to secure full information and proper observation of the underlying social circumstances, in identical terms throughout Europe — and ideally, throughout the world — based on the compilation and processing of comparable statistical data, which will help define an economic framework for quantifying this data.

6.3.1.2

On the basis of this conceptual and methodological definition, the Commission should sponsor a study covering the entire Community area, contributing to an assessment of the economic and social aspects of over-indebtedness (43).

6.3.2.1

The Commission should also draw up independent, harmonised legislation for measures that plan for, prevent and limit the impact of this phenomenon.

There should, in particular, be laws on:

In addition, in the long term, laws should be drawn up on the following aspects:

6.3.2.2

At the same time, the Commission should encourage good practice in this field, promoting the adoption of European Codes of Conduct, in a system of self- or co-regulation, as part of a well-defined, effectively implemented coercive legal system.

6.3.2.3

The Commission should also, at its own initiative or in cooperation with the Member States, set up specific information programmes, educational measures focusing on the practical aspects of credit use and projects for providing support and advice in this area, making use of ‘pilot project’ instruments that have yielded such positive results in other areas (45).

6.3.2.4

Lastly, the EESC suggests that a European Indebtedness Observatory be set up to work together with existing national bodies and others established in the Member States, to provide a forum for dialogue between all parties concerned, analyse developments in the phenomenon at European level and propose and provide back-up for the most appropriate prevention initiatives, subsequently assessing the impact thereof. The EESC here and now offers to house this observatory within its own institutional framework, at least until it becomes an independent body.

6.3.3.1

Given the diversity of systems set up at national level, which have varying origins, principles and methods (46), the Commission's efforts should primarily focus not on attempts to secure harmonisation, but rather on defining a reference framework and a set of fundamental principles that should be guaranteed by all procedural law systems covering prosecution for unpaid debt or debt recovery from individuals, encouraging the adoption of these principles and enforcing recognition thereof.

6.3.3.2

The most important of these fundamental principles are:

6.3.3.3

All of this work should, however, be opened up to involve the stakeholders and their representatives. It is suggested, therefore, that prior public consultation be held by means of the publication of a Green Paper defining the terms of the matter in hand, quantifying it at European level, analysing the different means and systems for preventing, monitoring and remedying situations of over-indebtedness and concluding with an outline for integrated action at Community level between the various Directorates-General concerned and also involving the authorities and civil society organisations in the various Member States and at Community level (47).

7.1

On 25 July 2007, the EESC held a public hearing on the subject of this opinion, attended by a number of guest participants who are specialists in this field.

7.2

On the basis of the opinions expressed at a very well-attended session which produced a number of extremely useful papers, there was clearly considerable support for the aims of this opinion, which takes on board many of the suggestions made at the event.