As we highlighted in our recent article from October 2nd, the number of credit contracts signed has been significantly increasing in recent years. Credit professionals are noticing a resurgence in the number of borrowers as well as a growth in the amounts borrowed. This situation has the corollary of a significant increase in the number of defaults. To protect the consumer, the Belgian government has decided to strengthen the legislation. Effective solution or demagogic palliative?
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 observing for several years 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 at play:
- The general trend to live on credit;
- The need to consume at all costs;
- A significant increase in the cost of living over the past decade;
- A stagnation of wages 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 of taxation implemented by a government that proves to be a prodigal accountant of public effects.
A Capitalistic Consumption Model
The industrial world has only one obsession: consumption. We hear it in all contexts, “growth is stalled.” We do not consume enough. Companies, industries are operating at a slow pace because their order books look grim (see the automotive industry in Europe). The balance of foreign trade is hardly in better shape: we import more than we export.
In short, we need to buy to make an economy work whose foundations now rest only on this substrate. Stop consumption and it’s the system’s bankruptcy.
But then, consume of course but with what money?
How can our fellow 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 both talk to you about growth and in the same breath, kill consumption through a fiscal repression that has never reached such a peak. It’s an open secret or a mild euphemism to point out that Northern Europe is the place in the world where labor income is most plundered.
So obviously, “consumers” have no choice but to resort to credit if they want “at all costs” to 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 a consumer in distress”?
The demagogues have taken the place of the political scientists.
A Draft Bill in Preparation
Our rulers have no regard for such considerations and they 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 in preparation would be as follows:
- Less advertising from credit institutions;
- More research on the employer’s solvency;
- More information available to the borrower.
It is mainly the mortgage credit that is targeted. The government is particularly targeting joint offers, which allow the client to obtain a better rate provided that 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, the consumer must be infantilized to the point that they do not realize the scope 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 at issue but…the advertising for consumption. However, this is precisely what the State seeks, which proclaims everywhere that “we do not consume enough”…;
- More research on solvency? Everyone knows that you cannot “make a rock bleed.” Solvency research is obviously already at the heart of the credit companies’ process. No bank would lend without having thoroughly studied all its guarantees;
- More information for borrowers? Let consumers start by reading the tons of information that are already at their disposal…and which make the information…unreadable.
- The 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 for 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 imposing constraining measures on the industry, it will eventually hinder job creation and even the perception of tax revenues.
Moreover, these new measures could, according to the Union professionnelle du crédit (UPC), cost the sector nearly 1000 jobs.
Irony of history, it is often by believing to help the most deprived that they are further precarized… because in reality, credit can often help people who are going through a temporary difficult period and who could, in theory, present a financial situation not favorable to the granting of credit but who with courage will get through it.
Those tomorrow will be able to “go get lost” and there is no doubt that the consequences in terms of bankruptcy, unemployment, and reduction of public revenues will not be long in coming…