As we pointed out in our recent article on October 2, the number of credit contracts signed has increased significantly in recent years. Credit professionals note an increase in the number of borrowers but also an increase in the borrowed amounts. This situation has as a corollary the significant increase in the number of defects. To protect the consumer, the Belgian government has decided to strengthen the legislation. Effective or palliative demagogic solution?
Payment defaults are increasing and affect almost 5% of borrowers in Belgium.
Is it really amazing? One can doubt it because, upstream, we note for a few years, a significant increase in the number of credit contract as well as an increase in the amounts borrowed.
What is this situation for?
There are several elements that come into play:
- The general tendency to live on credit;
- The need to consume at all costs;
- A significant increase in the cost of living over the past ten years
- Wage stagnation compared to the faster increase in the cost of living (thus in 20 years, real estate will have grown by 200%, while in the meantime, wages have only increased by 70%);
- A dramatic explosion in taxation implemented by a government that turns out to be an accountant lavishes public effects.
A capitalist consumption model
The industrial world has only one obsession: to consume. We hear it all over the place, “growth has stopped”. We do not consume enough. Companies and industries are running at a slower pace because their order books are looking sad (see the automotive industry in Europe). The balance of foreign trade is hardly in better shape: we import more than we export.
Anyway, we have to buy to run an economy whose foundations only rest on this substrate. Stop consumption and it’s system bankruptcy.
But here, consume of course but with what money?
How can our fellow citizens still consume in the same proportions as in the past since taxation has widened such a gap between the cost of living and income growth?
Europe and its member states are great schizophrenics who both talk to you about growth and who, in the same vein, are killing consumption through a fiscal repression that has never reached such a climax. It is an open secret or a mild understatement to point out that northern Europe is the place in the world where income from work is the most despoiled.
A draft bill in preparation
Our governors don’t care about these kinds of considerations and they act quickly. The government is therefore proposing a series of measures intended to protect consumers. This preliminary draft should considerably strengthen the rules for granting consumer credit.
The measures in preparation would be as follows:
- Less publicity from credit institutions;
- More research on the solvency of the employer;
- More information available to the borrower.
It is essentially mortgage credit that is targeted. The government is particularly attacking joint offers, which allow the client to obtain a better rate provided that they also subscribe to accessory products, such as fire insurance.
A bad project
For credit professionals, this project is deplorable for the following reasons:
- One can already legitimately wonder if in our time, the consumer must be so infantilized to the point that he does not realize the scope of his actions. In a society where the codification of laws has become pyramidal and where our individual responsibility is more questioned, we can measure the hypocrisy of the conceptual approach …
- Reducing advertising is absolutely an illusion: it is not credit advertising that is at issue but… consumer advertising. However, this is precisely what the State is looking for, which claims that “we are not consuming enough”…;
- More credit research? Everyone knows that you cannot “bleed a rock”. Credit research is obviously already at the heart of the credit business process. No bank would lend without having scrupulously studied all of its guarantees;
- More information for borrowers? Let consumers already begin to read the tons of information that are already available to them … and that make information … unreadable.
- Mortgage credit? It is probably the most protected and best secured type of credit by taking out a mortgage. The real difficulties are mainly encountered in small consumer loans for people who borrow $ 5,000.00 for example to go on vacation with the family …
We can really wonder when our government will understand that by imposing restrictive measures on the industry, it will end up hampering job creation and even the collection of tax revenues.
In addition, these new measures could, according to the Professional Credit Union (UPC), cost nearly 1,000 jobs in the sector.
Ironically, it is often by believing that it is helping the most disadvantaged that they are more precarious… because in reality, credit can often help people who are going through a difficult temporary period and who could, in theory, present a financial situation unfavorable to the granting of a credit but which by dint of courage will get out of it.
Those tomorrow will be able to “go and be seen” and there is no doubt that the consequences in terms of bankruptcy, unemployment and reduced public revenue will not be long in coming…