Opinion of the Economic and Social Committee on "Household over-indebtedness"
Date: 2002-04-24
Institutions: European Economic and Social Committee
Subjects: approximation of laws, exchange of information, household, household consumption, indebtedness, member country

21.6.2002

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Official Journal of the European Communities

C 149/1

II

(Preparatory Acts)

ECONOMIC AND SOCIAL COMMITTEE

Opinion of the Economic and Social Committee on ‘Household over-indebtedness’

(2002/C 149/01)

On 13 July 2000 the Economic and Social Committee, acting under the third paragraph of Rule 23 of its
Rules of Procedure decided to draw up an opinion, on ‘Household over-indebtedness’.

The Section for the Single Market, Production and Consumption, which was responsible for preparing
the Committee’s work on the subject, adopted its opinion on 8 April 2002. The rapporteur was Mr Ataı´de
Ferreira.

The Committee adopted the following opinion at its 390th plenary session of 24 and 25 April 2002
(meeting of 24 April) by 78 votes to six with eight abstentions.

1. Over-indebtedness — a topical issue

and drew the Commission’s and Member States’ attention to
the need for the Community to tackle this matter.

On 13 July 1992, in a Resolution on future priorities
1.1.
for the development of consumer protection policy,
the
Council for the first time included research into over-indebted-
ness as being one of these priorities.

1.2.
From that time on, although the phenomenon of over-
indebtedness is acknowledged to have assumed increasing
importance at national level in the various Member States,
warranting the adoption of specific laws and administrative
measures in most of these countries, no policy measures
whatsoever have been taken at Community level. This is in
spite of the study carried out by Professor Nick Huls (1), and
the highly professional monitoring work on the question by
DG SANCO.

1.3.
On 27 May 1999, the Economic and Social Committee
decided to instruct the Section for the Single Market, Pro-
duction and Consumption to draw up an information report
on ‘Household over-indebtedness’, which was subsequently
sent to all the Community institutions by decision of the
plenary assembly.

1.4.
In the course of the Portuguese presidency, while this
report was being drafted, the Consumers’ Council meeting in
Luxembourg on 13 April 2000 broached this subject again

(1) Overindebtedness of consumers in the EC Member States: facts
and search for solutions, Nick Huls et al., in Collection Droit et
Consommation No 29, 1994.

1.5.
The ESC information report concluded by rec-
ommending that the Commission ‘make an initial move in
this direction by immediately preparing a green paper on
household over-indebtedness in Europe, incorporating avail-
able research into the issue, providing an up-to-date picture of
legal arrangements and statistical data from the Member
States and the applicant countries, working towards a single
definition of over-indebtedness, and defining its preferred
approach to achieve the objectives identified in the present
information report’.

In the wake of this recommendation, it is known that
1.6.
the Commission called for tenders for two studies to be carried
out in the Member States, one on statistical aspects and
the other on the various legal arrangements covering over-
indebtedness.

In the meantime, it has emerged that the Commission has not
accepted the study on the legal aspects and has cancelled the
relevant contract, and that in examining the statistical study it
is encountering difficulties in comparing the data gathered —
which is not unexpected given the differing understanding and
approaches to the issue in the various Member States. It has
not yet officially revealed what tack if any it intends to adopt
for dealing with this issue, and it may be that the question will

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be left out of its action programme. However, the one-off
measures resulting from the review of
the directive on
consumer credit, albeit partial, are to be welcomed.

1.7.
As part of its moves to draw up the present own-
initiative opinion, the ESC decided to hold a public hearing in
Stockholm on 18 June 2001, with support from the Swedish
Presidency, designed to collate up-to-date information and to
compare the variety of experiences in this sphere in the Nordic
countries — an aspect which was noticeably missing from the
information report mentioned above.

1.7.1.
At this hearing, the Swedish Secretary of State for
Justice took the opportunity to point out the value the Swedish
government attached to adopting a Community approach to
this issue, aimed at finding a solution to the disadvantages
flowing from both the diversity of national approaches in this
area and the variety of lines of action selected by the different
Member States, with uneven results (1).

1.10.
The Internal Market, Consumer Affairs and Tourism
Council meeting on 26 November 2001 merits particular
attention: amongst other statements and recommendations
made by the ministers, it was felt that ‘divergences as regards
both the preventive and the social,
legal and economic
treatment of over-indebtedness in the Member States could
therefore give rise to considerable disparities both between
European consumers and between credit-providers’ and as a
consequence, ‘taking into account both the European Com-
munity’s desire to develop cross-frontier activities relating to
financial services and the growing scale of the phenomenon of
indebtedness and over-indebtedness, consideration could be
given at Community level to complementing the measures to
promote the development of cross-frontier credit with
measures to prevent over-indebtedness throughout the one
credit cycle’.

2. Household over-indebtedness — the Community

dimension

Shortly after, on 2 July 2001, the ‘Consiglio Nazionale
1.8.
(the National Council for
dei Consumatori e degli Utenti
Consumers and Users)’, held a major conference together with
the European Commission on ‘Competition rules in the EU
and banking systems compared’ at which the Head of the
SANCO DG’s Financial Services Unit presented the guidelines
followed in the proposal for the new consumer credit directive,
and Community aspects of over-indebtedness problems were
discussed (2).

2.1.
Over-indebtedness is a phenomenon with social, econ-
omic, financial, legal (civil and procedural) and, of course,
political aspects, all of which merit being tackled at Community
level.

From the perspective adopted by this own-initiative
2.1.1.
opinion, legal aspects with a direct impact on policies for
making the single market a reality are fundamental.

1.8.1.
The SANCO DG also took the initiative to hold a
hearing with government experts in Brussels on 4 July 2001
to discuss proposed amendments to the consumer credit
directive, at which some aspects were highlighted to relating
over-indebtedness prevention.

2.2.
The studies and hearings which have been carried out
have unequivocally demonstrated that developing a cross-
frontier financial services market requires the trust of pro-
ducers, traders, professionals and consumers.

In the course of

1.9.
the Belgian presidency, a major
colloquium was held in Charleroi on 13 and 14 November
2001 on ‘Consumer credit and Community harmonisation’,
where inter alia, the Belgian Minister for Economic Affairs and
Scientific Research made a point of highlighting the social and
economic aspects of the problem and how these were linked
to the development of financial services and cross-frontier
trade within the internal market (3).

(1) One point from the Secretary of State’s speech to highlight is his
comment that ‘there is a real risk that the current diversity of
arrangements within the European Union might contribute to an
increase in the number of technical barriers to the free movement
of goods and services within the single market’.

(2) In Italy, ADICONSUM (a consumer organisation), together with
other NGOs and a number of credit institutions, has promoted
draft legislation for handling cases of household overindebtedness.
(3) On 25 January 2002 the Belgian Government adopted draft
legislation on consumer credit, in which advertising which might
encourage overindebtedness is prohibited.

2.2.1.
A vital element for securing this trust is, on the credit
providers’ side, transparency of the rules regulating the market,
even in cases of payment default.

2.3.
Although it is true that a large number of payment
default cases — default constitutes the first step towards over-
indebtedness — can be dealt with under rules on credit
provision, in particular on consumer credit, there is a whole
series of measures for preventing and dealing with over-
indebtedness which fall more within the policy areas of justice
and the single market.

2.4.
Bearing in mind the subsidiarity principle and the new
wording of Article 153 of the Treaty of Rome and of Article 34
of the Treaty of Amsterdam a Community-wide approach to
the essential legal aspects of household over-indebtedness is
not only possible, but absolutely vital to the single market’s
effective operation.

2.5.

This claim is based on three fundamental reasons.

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2.5.1.
The first reason is the convergence of competition
conditions between those granting credit to private individuals,
ranging from credit institutions and other financial operators
to actual traders and service providers in credit and instalment
sales.

3. Conclusions and recommendations

3.1.

The ESC thus concludes that:

2.5.2.
The second concerns the way the single market itself
works: while it is ‘single’ from the point of view of oppor-
tunities for cross-frontier transactions,
it is split between
various national
legal systems when dealing with issues
generated by this market. In the light of recent approaches, in
particular in the field of e-commerce and distance sales of
financial goods and services,
it is entirely reasonable for
arrangements for household over-indebtedness to be harmon-
ised, as has already been done with commercial insolvency:
otherwise new barriers to competition and further distortions
of business competitiveness will be generated.

2.5.3.
The third reason is directly linked to consumer
protection and arises from the provisions of new Treaty
Article 153. Paragraph 3(b) of the Article now expressly states
that the Community shall contribute to the attainment of the
objectives referred to in its paragraph 1 — which unarguably
include resolving instances of over-indebtedness — through
‘measures which support, supplement and monitor the policy
pursued by the Member States’. This dispels any remaining
doubt as to the need for household over-indebtedness to be
framed in a Community policy ensuring harmonisation of
national initiatives in this field, without which unjustifiable
discrimination will occur against either sellers or consumers.

a)

over-indebtedness is a phenomenon which has become
widespread throughout all the countries of the European
Union and is a problem in the applicant countries, with a
tendency to become worse with the opening of borders
and cross-border trade;

b) most countries in the European Union have devised and
implemented national systems for preventing and dealing
with a variety of over-indebtedness situations;
these
systems are highly diverse and at times even at variance
with one another, both in terms of the basic laws and the
judicial and administrative procedures applied;

c)

d)

these differences generate barriers to the development of
cross-frontier credit and to the achievement of the single
market, itself, and do nothing to generate the necessary
confidence amongst economic operators in the single
market’s potential and benefits;

an effort should therefore be made to harmonise the legal
aspects relating to over-indebtedness; such harmonisation
is possible as part of the provisions contained in Articles 2
and 34 of the EU Treaty and current Articles 3 t) and 153
of the Treaty of Rome.

3.2.

The ESC thus recommends:

Three other circumstances point

2.6.
immediate action by the Commission.

to the need for

3.2.1.

that the Commission:

2.6.1.
The first relates to the physical introduction of the
single currency and the impetus that this will provide to
cross-frontier trade and consequently to the credit involved,
eliminating one of the main acknowledged barriers to cross-
frontier transactions.

2.6.2.
The second circumstance arises from the increase in
electronic trade and distance selling, with all that the directives
on these subjects aim to contribute to the elimination of
geographical and logistical barriers and to increased trust
between professionals and consumers. The imminent approval
of the proposed directive on the distance selling of financial
services will supplement the legal framework necessary for
boosting cross-frontier credit.

2.6.3.
Lastly, the upcoming enlargement of the European
Union calls at the very least for immediate harmonisation
before the legal framework becomes even more complex and
hard to manage.

a)

b)

c)

d)

immediately and officially publish the results of the study
it commissioned on the statistical aspects, and issue a
fresh call for tenders for a study on comparative law on
over-indebtedness in Europe;

draw up a green paper as soon as possible analysing the
consequences of the current situation from the point of
view of completing the single market;

propose measures for harmonising the legal framework
for preventing and dealing with over-indebtedness, relat-
in
ing to matters of both substance and procedure,
accordance with the principles of subsidiarity and pro-
portionality and taking account of the provisions of
Articles 2 and 34 of the EU Treaty and Articles 3 and
153 of the Treaty of Rome;

define and set up a network for exchanging information
between Member States and the Commission to follow
developments in household over-indebtedness in Member
States and the applicant countries, aimed at establishing
a European Over-indebtedness Observatory;

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e)

pay particular attention to the potential impact of the
adoption of measures in a variety of Community policy
areas — particularly consumer credit and mortgage loans,
commercial communications, advertising and marketing
and commercial practices — on creating or exacerbating
household over-indebtedness;

3.2.2.

that the Member States:

a)

b)

c)

continue along the path embarked upon with the Resol-
ution of 13 July 1992 and resumed at the Consumer
Council meetings of 13 April 2000 and 26 November
2001, until a legal framework is devised for a Community
approach to household over-indebtedness;

consider the possibility that some legal aspects of over-
indebtedness be dealt with in regulations similar to those
covering business insolvency arrangements;

urge the Commission to look into and present,
in
the light of experience and information exchange with
Member States, harmonisation proposals on the infor-
mation consumers should be given on credit contracts,
the use of data on their solvency, the role of credit
companies, procedural
intermediaries and financial

arrangements for dealing with payment default and
special procedures for payment recovery;

consider the possibility of setting up codes of conduct on
a voluntary basis, by means of co-regulation, to settle
cases of over-indebtedness;

envisage cooperation options aimed at dealing with
excessive multiple debt situations stemming from cross-
frontier loans using non-judicial means;

promote information and education campaigns, from
early school age onward, designed to prevent over-
indebtedness.

d)

e)

f)

3.2.3.

and that the Council and European Parliament:

a)

b)

clearly and unequivocally accept the need for initiatives
at EU level to harmonise the legal aspects of overindebted-
ness arrangements, as set out in point 3.2.2.(c) above;

provide the Commission with the budgetary resources
required to continue monitoring overindebtedness and
to take the preparatory steps needed if the legislative
harmonisation measures described above are to be
adopted.

Brussels, 24 April 2002.

The President

of the Economic and Social Committee

Göke FRERICHS