As a consumer-organisation, vzbv is limiting its answers to a few selected questions with relevance to consumers and their protection reflecting experiences in the German market.
vzbv would welcome to see the point of view of consumers and their interest being integrated into the guidelines. Consumers do not want to risk a foreseeable default, when settling a credit contract. It is in line with their interest to receive an appropriate, careful and professional scrutiny of their financial capabilities when settling a credit contract. Consumer protection, which is a task for all ESAs, and solvency supervision, are not opposed to each other with this.
It would be even best to see collective consumer protection to be named a further goal of creditworthiness assessment with respect to contracts with consumers in these guidelines.
Section 5.1.2 and attachment 2 enumerate data for creditworthiness assessment. This data sets a focus to a budget control to detect the financial capabilities of a consumer to pay the rates, which is a suitable way to detect relevant risks. According to our current knowledge, this is actually not always done with ordinary consumer credit contracts in Germany today. A survey of 2017 on providers’ practices with creditworthiness assessment initiated by Verbraucherzentrale Nordrhein-Westfalen may be of interest for finalising these guidelines. (https://www.verbraucherzentrale.nrw/sites/default/files/2017-10/Ergebnisbericht_Umfrage_der_VZ_NRW_zur_Kreditw%C3%BCrdigkeitspr%C3%BCfung_2017.pdf language DE)
The statement of paragraph 96 in section 5.2.1 is very important. “The creditworthiness assessment should aim to verify the borrower’s ability and prospect to meet the obligations under the loan agreement (…)”
The established term of „creditworthiness assessment“ in both English as well as in German seems to indicate an assessment mainly of the borrower and there general ability or “worthiness” to take a credit. Whereas in its true sense this is about checking whether the conditions of an offered loan contract is actually matching the needs and capabilities of the individual borrower.
With that, some further assumptions should be taken into consideration:
- Are there any cost traps to consumers when settling that credit contract that will affect the financial capabilities of that consumer? This will apply to any cross-selled contract no matter if they need to be included into the APR or not, including e.g. optional payment protection insurances.
- Paragraphs 107 and 119 reference to changed financial capacities with retirement, which is important. The guidelines should yet not be understood nor offer a reason to generally restrict elder yet still working consumers to settle only contracts that reflect what they are to be able to pay when they retire from the start. That is low rates from the beginning causing longer running contracts with more costs, though they could afford to repay faster until retirement actually starts. It is about matching conditions of a contract to the needs and financial capabilities of the consumer during the life-time of the contract.
- Follow-up financing (especially with mortgages) or conversion of debt should be considered adequately. If the same strict standards are to be applied as they should with any entirely new credit or higher credit amount too strict conditions could cause default instead of preventing it. Especially if consumers were able to repay their previous contract despite a lower assumed creditworthiness. And a conversion of debt is intended to enable suitable new conditions. This would reflect as well the spirit of Article 28 of Directive 2014/17/ЕU (CARRP)
- Reflecting Article 28 of Directive 2014/17/EU there do exist rules on the cancellation of consumers’ credit contracts due to default. (§498 BGB Germany). They shall prevent petty and singular non-recurrent difficulties to meet payments in time to be a cause to end the whole contract. In these cases, contracts should not be considered Non-Performing-Loans.
Paragraph 181 reflects the necessity to document creditworthiness assessment and the ability to explain acceptance or denial of a contract. The ability to explain is important. It would be critical if at some point e.g. algorithm driven decision-making would no longer allow for proper explanation and the necessary ability to check their results.
The view on costs in this section is restricted entirely to the point of view of providers. From a consumers point of view it would as well reflect that higher costs with credit for consumers that are considered a potentially higher risk, might as well affect their financial capabilities as borrowers. The more this capability is limited by higher costs the higher is the likelihood that any sudden, unforeseen extra expense may actually push that individual beyond the threshold of over-indebtedness. Excessive risk-based pricing is not favourable to prevent those risks.