Two Dimensions of Combating Over-Indebtedness: Consumer protection and financial stability

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Author(s): 
Sylvain Bouyon, Roberto Musmeci

The expansion of credit markets has fostered economic growth across the European Union, but it has also produced a sharp increase in the average level of household indebtedness. As a consequence of the financial crisis, the drop in households’ disposable income has undermined the ability of many EU households to honour their financial commitments. Against this background, this paper investigates the complexity of indebtedness and draws a distinction between its legal and economic dimensions in order to better understand the phenomenon. Despite efforts made by the European Commission, we found that the definition of indebtedness and over-indebtedness still lacks precision. Mirroring the interventions of national legislators in terms of consumer protection, over-indebtedness in the EU tends to be narrowly defined in terms of its relationship with insolvency. Therefore, further efforts need to be taken in designing the necessary measures to alleviate and prevent over-indebtedness. Accordingly, this study focuses on the role of financial education, analyses the impact of the relevant EU directives, collects important evidence in support of harmonising debt-advice services and explores the path towards a common methodology of early detection of vulnerable households.

For more information on European private credit markets see also the ECRI Statistical Package 2017 - Lending to European Households and Non-Financial Corporations in Europe.