After the lender has determined if the customer is creditworthy, it could determine in the credit application that is consumerвЂ™s.
The key problem to be addressed at this time is exactly what to complete in case there is the negative results of the creditworthiness test. The theory behind accountable financing implies that when this occurs the lending company should just take reasonable actions to guard the customer from the danger of a problematic payment situation. These actions can include warning the customer concerning this danger and on occasion even not giving any credit in some circumstances.
Besides the responsibility to evaluate the consumerвЂ™s creditworthiness, the idea of responsible financing additionally suggests another major responsibility of creditors and credit intermediaries into the circulation procedure вЂ“ the work to evaluate the essential suitability of at the least the financial loans provided as well as credit for the consumer that is individual the light of his / her individual requirements and circumstances. All things considered, no matter if a suitable borrower-focused creditworthiness assessment happens to be conducted, the customer may nevertheless suffer significant detriment caused by the purchase of the credit-related item, such as for instance re re payment security insurance coverage. This might be the situation if the customer happens to be forced into purchasing the monetary item she does not really need or cannot benefit from that he or.
Demonstrably, the above analysis provides just the primary blocks associated with legal framework for responsible credit financing. The recommended minimum core obligations of creditors and credit intermediaries to do something responsibly towards customers when making and circulating credit or associated items require further elaboration. More research is important to shed light about how to offer more shape that is concrete the merchandise governance regime, guidelines in the consumerвЂ™s creditworthiness assessment, or fundamental suitability demands within the context of credit rating with due reference towards the maxims of subsidiarity and proportionality. In specific, determining the essential serious cases of reckless financing, their motorists plus the best practices for handling them from throughout the EU could offer of good use understanding in this respect. Also, the commercial analysis for the credit rating areas may help recognize consumer detriment this kind of areas as well as вЂњtoxicвЂќ credit items and reckless financing methods that might cause it.
Because would be shown below, credit financing throughout the EU might not be totally on the basis of the accountable financing responsibilities of creditors and credit intermediaries as explained above. Areas which can be of particular concern range from the supply of high-cost credit, cross-selling, and peer-to-peer lending (P2PL).
The Provision of High-Cost Credit
Reckless financing related to high-cost credit services and products poses major dangers to customers (European Parliament 2014, p. 54). It is specially the situation in those portions regarding the market where a small amount of credit have reached stake and/or the expenses of credit are much more than the common. The high expenses of the credit item may derive from many different sources, including not restricted to the fundamental interest, expenses mixed up in summary of a credit agreement, fees or penalties brought about by non- or belated payment of loans, and charges for going overdrawn. The buyer dilemmas connected with high-cost credit items are twofold. To start with, the expense in by themselves could be extortionate, undermining the consumerвЂ™s payment ability and making the customer more at risk of unforeseen financial hardships. Because of this, customers operate a larger chance of stepping into a repayment situation that is problematic. In addition, when a customer struggles to repay the agreed amount on time, his / her situation that is financial is to be worse, since high-cost credit often gets to be more costly in the long run. The consumer may be forced to take out more credit, often at an excessive rate, to repay the initial debt and/or to cover his or her essential living expenses as a consequence. The consumer risks become trapped in a spiral of debt by pushing repayments further into the future.