Consumer credit necessary but dangerous

1
Consumer credit necessary but dangerous

• Course on competition law and consumer protection
  
• San Jose, Costa Rica, March 13-15, 2007

(Part of Prof. Dr. R. Zäch, prepared by Lukas
Schaub, scientific collaborator, Swiss
Competition Commission)

2
I. Consumer credit necessary but dangerous

• Overview
• Basics
• Law of the European Union
• Swiss law

3

• Credit as impulse of economic growth

• Today we live in a credit society. There are
  multiple ways to get goods and services without
  having to pay the whole purchase price at once
  (credit, leasing, costumer cards etc.)
• The increased use and availability of credit has
  many positive consequences and is a necessary
  feature of todays economies. Most important,
  credit leads to economic growth. To raise a
  credit is no more seen as infamous, but as
  contribution to a well going economy. Therefore
  the government gives often tax incentives when
  raising a credit.

4

• Credit as reason of social misery

• Saving is no more modern in the eyes of many
  consumers. There are so much possibilites to get
  immeditely what is wanted in the credit society.
• Additionaly modern consumer society with its
  sophisticated marketing machinery creates needs
  by a multiplicity of consumers.
• Therefore the homo oeconomicus acts sometimes
  irrationaly he raises a credit though he knows
  from the beginning he wont be able to repay it
  or he doesnt consider the possibility of
  unemployment, accident or divorce.
• Consumer overindebtedness has become more and
  more important in Europe over the past decade.

5

• Intervention of the legislation

• Legislation in the fields of consumer credit has
  two objectives
• To protect the consumer from overindebtedness
  because of too easy access to credit. There
  should no business be made with the poverty of
  people.
• Overindebtedness of a big number of people leads
  to social disquiet.

6

• Means to prevent inconsiderate credit raising

• Mandatory formal regulations for credit contracts
  
• Mandatory minimal content for credit contracts
• Mandatory right of the consumer to discharge his
  obligation ahead of schedule
• Mandatory legal rates
• Mandatory right of withdrawl
• Mandatory credit ranking

7
II. Law of the European Union Council
Directive 87/102/ECC concerning consumer credit

• Article 4
• 1. Credit agreements shall be made in writing.
  The consumer shall receive a copy of the written
  agreement (mandatory formal regulation).
• Article 4
• 2. The written agreement shall include
• (a) a statement of the annual percentage rate of
  charge
• (b) a statement of the conditions under which
  the annual percentage rate of charge may be
  amended (obligatory minimal content).
• Art. 8
• The consumer shall be entitled to discharge his
  obligations under a credit agreement before the
  time fixed by the agreement. In this event, in
  accordance with the rules laid down by the Member
  States, the consumer shall be entitled to an
  equitable reduction in the total cost of the
  credit (discharge ahead of schedule).

8
III. Swiss Law

• The Swiss Federal Law concerning consumer credit
  (KKG SR 221.214.1) is younger than the Europen
  law and differs in important points (at the
  moment the EU develops a new Directive on
  consumer credits).
• Art. 16 KKG constitutes the right of withdrawl.
  There is no similar clause in the EU at this
  time.
• Art. 28 KKG obligates the creditor to an
  obligatory credit ranking. If he infringes this
  duty he loses interest and eventually the credit
  amount (punitive effect). There is no similar
  clause in the EU at this time.
• Art. 14 KKG statues a legal maximum interest (15
  at the moment). There is no similar clause in the
  EU at this time.