The Legal Framework of Consumer Credit Bureaus and Credit Scoring in the European Union: Pitfalls and Challenges - Overindebtedness, Responsible Lending, Market Integration, and Fundamental Rights
Ferretti, Federico, Suffolk University Law Review
I. INTRODUCTION AND BACKGROUND
The integration of European Union (EU) credit markets is crucial for the efficient functioning of the EU financial system, for the EU economy as a whole, and for the full achievement of the four freedoms guaranteed by the EU's internal market. (1) Neither the consumer nor the mortgage-credit markets are an exception to this need for integration, and EU policymakers are paying increased attention to them. Concurrently, the market for loans available to consumers--both consumer loans and mortgage-credit loans--has grown rapidly in the last decade across the EU and is becoming increasingly sophisticated. However, the development of retail and mortgage-credit markets has increasingly left European consumers in debt. This growth of consumer indebtedness is becoming a concern for national and EU policymakers alike.
The ongoing, global credit and financial crisis has raised important issues regarding: the protection of consumers in financial markets; the scope, amount, and effectiveness of regulation in financial markets; and the need for additional safeguards to stem the social problems that the crisis has exacerbated. consumers are still bearing the costs of the financial-market failures, as evidenced by policy documents revealing the severe consequences not only for individual homeowners losing their homes in foreclosure procedures, but also for society as a whole, considering "their impact on financial and social stability." (2) Moreover, a large number of member states have imposed austerity measures as a core strategy to overcome the current debt crisis. Nonperforming personal and mortgage loans are expected to remain at high levels or even increase, indicating that overindebtedness is likely to persist or intensify. Therefore, the promotion of responsible lending and borrowing policies to limit the overindebtedness of European consumers is high on the EU agenda, alongside the advancement of measures for the cross-border provision of credit and the abolition of obstacles to the free movement of goods, persons, services, and capital in order to achieve further integration. (3) Likewise, European policymakers closely scrutinize the relationship between borrowers and financial institutions.
Responsible lending and borrowing is a recent policy in the EU. Documents reveal that the EU's policy makes reference to the delivery of responsible and reliable markets--as well as to the restoration of consumer confidence--where credit products are appropriate for consumers' needs and are tailored to their ability to repay debts. (4) The policy envisages a framework that could "ensure that all lenders and intermediaries act in a fair, honest and professional manner, before, during and after the lending transaction." (5) Similarly, it is expected that in order to obtain credit, "consumers should provide relevant, complete and accurate information on their financial conditions." (6) They are also "encouraged to make informed and sustainable borrowing decisions." (7) The European Commission recently consulted all stakeholders on responsible lending and borrowing in the EU to find measures to adequately assess--by all appropriate means--borrowers' creditworthiness before granting them a loan, in order to tackle overindebtedness. (8) The consultation covered, among other things: the advertising and marketing of credit products; the information provided to borrowers prior to granting any loans; ways to assess product suitability and borrower creditworthiness; advice standards; responsible borrowing; and issues relating to the framework for credit intermediaries. (9)
At present, consumer-credit data sharing and database consultation at the national level are the available market solutions before granting loans to individuals. At the same time--considering the integration of retail credit markets and the harmonization of the rules governing them--the EU requires full compliance with its existing legal framework, especially its data-protection rules. …