Kredit-Kompass News

Consumer Loans and the Role of Credit Bureaus in Europe

This conference (May 29/30, 2009) initiated by Prof. Micklitz at the European University Institute in Florence was supported by SCHUFA. Invited to the event were representatives of consumer organizations and credit bureaus, as well as consumer policy experts and scientists from all over Europe.

The subprime mortgage crisis which developed in the U.S. became a full-blown crisis in 2007 and its effects have been rippling through the global economy ever since. Following the mortgage crisis, there is now an impending credit card crisis. Some people are talking about the biggest credit and debt bubble in history. Consumer behaviour, the political framework, lenders and credit bureaus – they all played a role in this crisis. What lessons can be learned in Europe from the sub-prime crisis in the USA?

Even if consumer culture in European countries is generally different to that in the U.S., consumer debt in Europe has increased significantly since the Second World War. In Germany, as early as the end of the 50’s, 15 percent of retail sales were processed via credit purchases. Today, during the crisis, zero percent financing is often offered in order to drive consumption. In Italy, between the end of 2002 and 2008, the total volume of consumer loans as well as of mortgage loans nearly doubled. Borrowing by SMS exists in countries such as Finland, Sweden, Estonia and the Netherlands and in the Euro zone the payment volume of credit cards doubled between 2001 and 2007.

The continuing development of the credit market and innovative credit instruments, among other things, have contributed to the growing market for consumer loans. Private debt is a fixture in the modern credit business.

Along with this debt, however, comes the risk of over-indebtedness. What does over-indebtedness mean? At what point does one have too much debt? There are many explanations but, up until now, no standard definition recognized on an EU-wide basis. By the same token, there are no accurate statistics on the extent of over-indebtedness in the individual member states.

While share indices are used as measures of the general mood in the financial markets, there is no standardized barometer to measure the situation in private debt and over-indebtedness in Europe and in individual countries.

Such a barometer, although it would apply to consumer loans in Europe specifically, would be an important indicator for recognizing and monitoring developments and for reacting to warning signals.

Measuring is one thing, diagnosis quite another. It is just as important to be aware of the financial and cultural aspects in the various countries. These include aspects of consumer policy such as the forms of credit on offer, the credit and payment behaviour of consumers, approaches to financial education and the consultation services available in cases of over-indebtedness.

With the goal of learning more about the financial culture in individual states, we invited consumer policy experts, scientists and representatives from the credit industry and credit bureaus from all over Europe to the European University Institute in Florence.