Achieving social justice through financial inclusion

The revision of the Consumer Credit Directive is an opportunity to empower citizens by improving their access to finance.
Source: Foundation for the Development of Financial Markets (FRRF)

By Agnieszka Wachnicka

Agnieszka Wachnicka is President of the Foundation for the Development of Financial Markets (FRRF)

06 Jun 2022

Going under the radar, the revision of the Consumer Credit Directive, as part of the Commission’s New Consumer Agenda, marks a pivotal moment to ensure greater levels of consumer protection and the sustainable development of the financial sector, in light of the accelerated digitalisation of consumer credit lending practices. Although FRRF, the association that represents the largest non-banking financial institutions (NBFIs) operating in Poland, fully supports these ambitions, some proposals may entail risks that unintentionally have adverse effects on consumers and interrupt access to affordable credit for European citizens.

The NBFI market, worth €18.5bn in the EU, plays a fundamental role as a key vector of financial inclusion but also as a source of competition in the provision of financial services. In dealing mainly with small amount short- or medium-term loans, NBFIs are a crucial source of finance, notably for lower-income individuals in less-economically developed EU Member States that want to improve their standard of living but are unable to do so with their disposable income.

In contrast to the Commission’s text, certain aspects of the Parliament’s proposals seem to be relatively disconnected from any previous impact assessment and overlook the importance of the economic and social role of NBFIs, especially in the context of rampant inflation and the degradation of Europeans’ purchasing power. Those particular mechanisms, put forward under the premise of consumer protection, promise not only to be ineffective but are likely to instead shift excessive risk and increased costs to consumers.

By way of example, while EU legislators expect creditworthiness assessments to be conducted thoroughly by creditors, by limiting the scope of information that can be used to economic and financial data only, the legislators unintentionally expose consumers to an increased risk of over-indebtedness and insolvency, which needn’t be the case if relevant behavioural data can be duly evaluated. Policymakers should not ignore the fact that not only the ability but also the willingness to repay the debt should be duly assessed, and this lies in the interest of the consumer.

Policymakers should not ignore the fact that not only the ability but also the willingness to repay the debt should be duly assessed, and this lies in the interest of the consumer”

Beyond this, the reduction in the cost of consumer credit across the EU, although desirable, may result in the economic non-viability of certain loan offers, if applied using incorrect or too-low cost capping parameters. The financially vulnerable, i.e. those who involve the highest risk, will subsequently be the first to be refused financing. In the absence of NBFIs, these consumers have an increased tendency to file for bankruptcy or are driven towards unregulated or even illegal credit lenders.

With discussions already under way in the European Parliament and Council, FRRF therefore urgently calls for a balanced and proportionate approach to the Consumer Credit Directive that empowers consumers by providing them with the ability to access the sources that meet their specific financing needs. Only through financial inclusion can meaningful social justice be truly achieved.



This article reflects the views of the author and not the views of The Parliament Magazine or of the Dods Group