Intro Olivier Micol

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Health and Consumers Health and Consumers Main results of the study on households' over-indebtedness Olivier Micol EU Commission DG Justice and Consumers

Transcript of Intro Olivier Micol

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Health and Consumers

Health and Consumers

Main results of the study on

households' over-indebtedness

Olivier Micol

EU Commission

DG Justice and Consumers

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Health and Consumers

Health and Consumers

Objectives of the study

1 – Snapshot of the situation, including the definition of over-indebtedness

2 – Main causes of over-indebtedness

3 – Main consequences of over-indebtedness

4 – Measures and best practices to alleviate the impact of over-indebtednesson households

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Information sources

Main sources on households' over-indebtedness

- The ! income, social inclusion and living conditions surve" #!-S$%&'

- (ata from other sources #urostat, &) and *ational &entral )an+s, uropean SocialSurve", etc' on

• arrears #on utilit" bills, mortgages, financial commitments, or unsecured credit.loans'

• debt settlement #court-arranged solutions to debt, repa"ment plans b" debt advice

agencies, debt /rite-offs b" creditors'• other indicators, not necessaril" measuring over-indebtedness as such #debt to income

ratio, debt service burden, users of debt advice agencies'

!urveys s"ecifically carried out for this study

- 120 face-to-face intervie/s /ith over-indebted households in si Member States #, !,(, S$, S, !5'

- 266 intervie/s /ith sta+eholders and eperts in all Member States #financial industr", civilsociet" organisations, public authorities, independent eperts'

- Sta+eholder seminar held on 7anuar" 2013

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Definition

*o common uropean operational definition of household over-indebtedness Somesta+eholders stated that the definition the" used /as based on national la/ orlegislation

8 specific o"erational definition /as used for the stud" ouseholds are consideredover-indebted if

they are having – on an on-going basis – difficulties meeting (or falling behind with)their commitments, whether these relate to servicing secured or unsecured borrowingor to payment of rent, utility or other household bills.

This definition is not limited to the issue of debts stemming from financial credits

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#evel of over-indebtedness

9 !-S$%& of 2011 in the !, almost one in nine of those surve"ed #114:' hasbeen in arrears /ith pa"ments over the previous 12 months on utilit" bills,rent.mortgage, and.or hire-purchase.loan agreements due to financial difficulties

9 )ut /ide variation in the levels and nature of the financial difficulties of households inindividual Member States

9 ;roportion of people in arrears on utility bills in the ! #<<:' the highest amongthe overall arrears on +e" commitments

9 ighest levels of arrears on utilit" bills in !12 and Southern Member States #)=,>, %? and ! levels more than double the ! average in 2011'

9 (evelopment of the overall level of arrears #as measured b" !-S$%& bet/een 200@and 2011' /ithout surprise, increase in overall levels of arrears in the maAorit" ofMember States, in particular since the onset of the financial crisis #2006-200<'

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$y"es of over-indebted households

8ccording to sources such as !-S$%&, uro-barometer and householdsBintervie/s, income #and consequentl" povert"' /ould be one of thestrongest predictors of over-indebtedness - the lo/er the income, thegreater the ris+

ouseholds /ith disposable incomes of less than C0: of the national

median are among the most common t"pes of over-indebted households

The research also identified that the follo/ing groups are more at ris+

- "ounger people

- households /ith man" children

- lone parents #greater ris+ for them than for t/o parent families'- tenants - ho/ever, in certain countries, this relation is reversed #eg $and S'

- migrants and non-! citiDens

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Causes %&

Ee identified t/o broad categories of causes among the drivers of households over-indebtedness

- e(o)enous causes, namel" the macro-economic factors #cost of living, incomelevel and variations due to eg unemplo"ment' and some personal circumstances#sic+ness, divorces, etc'F

- endo)enous causes, namel" possible /rong economic behaviours and poorfinancial choices b" the households #t"pes of credits, level of borro/ing and poorfinancial management'

E(o)enous causes seem more "rominent than endogenous ones

G out of 10 respondents thin+ that macro-economic factors are among the mostimportant causes of financial difficulties $n addition, higher unemplo"ment isassociated /ith high arrears, /hile increases in disposable income are associated/ith lo/er frequencies of arrears

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Causes %*

ouseholds financial management the Hincapacity to deal with financial productsH and

the Hlack of money management skillsH /ere chosen among the most importantcauses of over-indebtedness b" nearl" t/o-thirds of sta+eholders

The use of consumer credit is positivel" associated /ith the li+elihood of arrears, inparticular arrears on utilit" bills

This ma" suggest that consumer credit is also used for dail" life, not onl" for specificpurchases

$n contrast, the frequenc" of arrears is much less lin+ed to the absolute level of debt

*o simple direct relationship bet/een the levels of mortgage credit and the levels of

arrears

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Cultural attitudes

8ttitudes var" bet/een Member States, but sta+eholders noted thathistoricall" a lot of significance used to be attributed to being debt-free

This attitude has changed /ith the development of the financial sector andthe introduction of a variet" of ne/ financial products accompanied b"cultural valorisation of consumption

o/ever, most recentl" and due to the financial crisis, consumers arebecoming more careful vis-I-vis ta+ing credits

rom the intervie/s, it has emerged that man" households /ant to repa"their financial commitments and are often read" to accept alternativesolutions This could suggest that the incidence of HabuseH b" households

#moral haDard' could be smaller than epected

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Conse+uences

&onsequences for individual households impact their personal /elfare and areoften considered as punitive

educed standard of living, social stigma and eclusion, deterioratinghealth and /ell-being, relationship difficult" or brea+do/n, sanctions for

non-pa"ment, housing eclusion, financial eclusion, reduced labourmar+et activit"

9 This general picture is confirmed b" the household intervie/s conducted forthe stud" in C Member States

9 )ut the consequences have a broader impact on societ" #impact on overalldemand, social cohesion, etc'

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,revention

The follo/ing measures /ere listed b" the sta+eholders

o arl" identification of households at ris+

o equiring lenders to compl" /ith responsible lending provisions #eg fromthe &onsumer &redit (irective and from national provisions'

o inancial education and responsible borro/ing to prevent poor financialchoices /hich might contribute to over-indebtedness

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Measures to alleviate the im"act

o Debt advice is considered quite effective #research from the *% found

that one euro invested in debt-advice means a saving of 3 euros oflosses for the societ"' !nfortunatel" not equall" common in the !#better developed and more /idel" available in !1@ than !12'

o Informally broered arran)ements are available in most MemberStates but var" from case to case and bet/een Member States

o .ormal out-of-court debt settlement procedures are less commonand ma" differ substantiall" bet/een Member States

o Court-based consumer insolvenc" procedures fomall" available in

several Member States )ut some specific legal tools for the dischargeof debts, such as the Hpersonal ban+ruptc"H or the Hdatio in solutumHavailable in a fe/ ! Member States onl"

o Direct financial su""ort for households is reported as relativel" rare

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$han you for your attention

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