As we highlighted in our recent article on October 2, the number of credit contracts signed has significantly increased in recent years. Credit professionals have noticed a resurgence in the number of borrowers as well as an increase in the amounts borrowed. This situation has resulted in a significant increase in the number of defaults. To protect consumers, the Belgian government has decided to strengthen legislation. Effective solution or demagogic stopgap?
The observation
Payment defaults are increasing and affect nearly 5% of borrowers in Belgium.
Is this really surprising? One might doubt it, because, upstream, we have been witnessing for some years now, a significant increase in the number of credit contracts as well as an increase in the amounts borrowed.
What is this situation due to?
There are several factors to consider:
- The general trend of living on credit;
- The need to consume at all costs;
- A significant increase in the cost of living over the past decade;
- Stagnation of salaries compared to the faster increase in the cost of living (in 20 years, real estate has increased by 200%, while in the same period, salaries have only increased by 70%);
- A dramatic explosion of taxation implemented by a government that proves to be a prodigal accountant of public effects.
A capitalist model of consumption
The industrial world has only one obsession: consumption. We hear it everywhere, “growth is stalled.” We do not consume enough. Companies, industries are running at a slow pace because their order books look bleak (see the automotive industry in Europe). The balance of foreign trade is not in better shape: we import more than we export.
In short, we need to buy to keep an economy functioning that rests solely on this substrate. Stop consumption, and the system fails.
But of course, consume, but with what money?
How can our citizens still consume in the same proportions as in the past when taxation has created such a gap between the cost of living and income growth?
Europe and its member states are great schizophrenics who talk about growth and, in the same breath, kill consumption with fiscal repression that has never reached such a peak. It is an open secret or a mild understatement to say that Northern Europe is the place in the world where labor income is the most plundered.
So, of course, “consumers” have no choice but to resort to credit if they want to “at all costs” treat their addiction to consumption.
But whose fault is it?
The credit professionals who would be “big bad wolves unscrupulously taking advantage of the naivety or weakness of desperate consumers?”
Demagogues have taken the place of political scientists.
A draft bill in preparation
Our rulers do not care about such considerations and act as quickly as possible. The government therefore proposes a series of measures supposed to protect consumers. This draft should considerably strengthen the rules for granting consumer credit.
The measures being prepared are as follows:
- Less advertising by credit institutions;
- More research on the employer’s solvency;
- More information available to the borrower.
It is mainly mortgage credit that is targeted. The government is particularly tackling joint offers, which allow clients to obtain a better rate provided they also subscribe to ancillary 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, consumers need to be infantilized to the point where they do not realize the significance of their actions. In a society where the codification of laws has become pyramidal and where our individual responsibility is increasingly questioned, one can measure the hypocrisy of the conceptual approach…
- Reducing advertising is absolutely an illusion: it is not the advertising for credit that is the problem but… advertising for consumption. Yet, this is precisely what the state seeks, claiming everywhere that “we do not consume enough”…;
- More research on solvency? Everyone knows that “you can’t get blood from a stone.” Solvency research is obviously already at the heart of the process of credit companies. No bank would lend without having scrupulously studied all its guarantees;
- More information for borrowers? Let consumers start by reading the tons of information already available to them… which makes the information… unreadable.
- Mortgage credit? It is probably the most protected and best-guaranteed type of credit by the mortgage. The real difficulties are mainly encountered in small consumer credits of people who borrow 5,000.00 € for example to go on a family vacation…
Other consequences
One can really wonder when our government will understand that by continually imposing restrictive measures on the industry, it will end up hindering job creation and even tax revenue collection.
Moreover, according to the Professional Union of Credit (UPC), these new measures could cost the sector nearly 1,000 jobs.
The irony of history is that it is often by believing to help the most deprived that we make them even more precarious… because in reality, credit can often help people who are going through a temporary difficult period and who could, in theory, present a financially unfavorable situation for obtaining credit but who, through courage, will make it through.
These people tomorrow will be “told to go away” and there is no doubt that the consequences in terms of bankruptcy, unemployment, and reduction in public revenues will not be long in coming…
