Finance Watch is very keen to support EBA initiatives in the area of consumer protection.
The proposed draft guidelines are an important step in favour of responsible lending practices, in particular when it comes to clarifying the scope of the EBA mandate. This mandate rightly extends far beyond credit institutions and includes clarifying as well the concept of creditworthiness assessment to provide operational guidelines.
In general, we would welcome an additional specific clear mention of a consumer protection objective: considering the ability of appropriate creditworthiness assessment to limit risk of default “at the time of credit contract signature”, the guidelines should set an objective of limiting NPLs not only for financial stability purposes, but also for the purpose of over-indebtedness reduction.
This would allow the collection of data that are key in this field: the number of defaulted contracts, the number of defaulted debtors, the default ratios per type of credit. These are all key indicators to measure responsible/irresponsible lending practices and to establish relevant benchmarks and references between market actors.
Some Financial Market Authorities, at national level, have developed relevant tools (reporting, naming, scoring companies) where transparency is used in a way to significantly improve companies’ involvement in responsible lending. Many firms in the credit market (such as subprime lenders or credit purchasers) do not face the same reputational constraints, and any initiative that will increase a level playing field between all actors should be promoted.