EC Proposes a Debtors' Charter

Grantors of consumer credit in Europe are deeply concerned about a forthcoming proposal for a "Uniform Consumer Credit Code" (That is not the official title.) for members of the European Community. The proposals have not yet been officially released or approved. However, Barbara Buchanan summarizes some early gleanings of the proposals in the most recent issue of credit today. The basic objective of the regulation is to require "responsible lending." One lender who provides credit to high-risk borrowers characterized the proposals as a "government license to avoid debt." An official of the Finance and Leasing Association, which accounts for about a third of the consumer credit in the UK, is quoted as saying that the proposals were "disproportionate and contrary to lenders' human rights…. It allows borrowers who default to deny liability because the creditor should never had made the loan in the first place."

Observers of the U.S. debate over bankruptcy reform will recognize a familiar theme here. Opponents of tighter bankruptcy filing rules (especially the "means test" of ability to repay debt as a requirement for Chapter 7 eligibility) have repeatedly argued that creditors make loans with little regard for the borrower's ability to repay. Never mind that the "means test" in the bankruptcy bill blocks a borrower's choice of Chapter 7 only when he clearly has the means to pay. Both the U.S. consumer advocates and the EU regulators seem to have forgotten that the borrower has a great deal to say about whether a given loan will be repaid.

[Author's note: credit today is the correct title; no capital letters]