A worldwide association of bank supervisors have published a report on responsible lending. The report covers European countries like Germany and France but not the UK and most of the other EU states. But it also covers also China, Japan, Singapore, South Africa, Australia and Uganda. The USA and South America do not show up. Although this is a quite arbitrary selection the most interesting revelations show that the idea of responsible credit instead of responsible lending as a mere act of credit extension has got strong support in countries like South Africa or Australia. The report therefore also covers problems concerning the quality of a credit (rate ceilings) and overindebtedness as well as mechanisms of enforcement.
The movement for responsible credit has induced national legislators to follow the problems of consumer credit and less the banks. But we miss a theoretical background in which the different regulatory efforts could be systematised and evaluated. It looks more like a warehouse of initiatives and offers without sufficient information on how they are used. We also would like to have more connections of responsible credit with the financial crisis which obviously has stirred regulatory efforts and caused them to move away from information to product regulation. Since the UK and the USA still play a core role in the development of this market a merely best practice approach as followed in this survey should be complemented by a worst practice approach.
We look forward to seeing more from the Finconet and will try and involve them in our stakeholder conferences.
The International Financial Consumer Protection Organisation (FinCoNet) report on responsible consumer lending.
The report provides an overview of the instruments the various international supervisory authorities can use in the field of consumer credit.
Note: The FinCoNet study builds on some existing work done by the World Bank in 2013 on responsible lending. See: World Bank : Responsible Lending - Overview of Regulatory Tools (October 2013)
FinCoNet publishes report on responsible lending
15 July 2014 - FinCoNet, the International Financial Consumer Protection Organisation, today published its report outlining key findings and good practices on Responsible Lending – a Review of Supervisory Tools for Consumer Lending Practices.
FinCoNet’s report is based on an international survey of 20 jurisdictions and representative bodies, and identifies practices and initiatives to promote responsible lending in the consumer credit market.
FinCoNet is the worldwide network of supervisory authorities in the field of consumer protection in banking services for consumers.
The recent report on responsible consumer lending is based on a questionnaire that was completed by 20 countries. The questions concerned, inter alia, (i) the benchmarks used by supervisory authorities to determine what constitutes irresponsible lending, (ii) the procedure for identifying irresponsible lending and (iii) the instruments used by those supervisory authorities to deal with irresponsible lending.
The main conclusions of the report are:
- Responsible lending obligations have developed significantly over the past ten years.
- The financial crisis has drawn attention to the importance of financial consumer protection. Particularly as part of a stable financial system.
- The regulatory and supervisory framework that governs responsible lending is in a transitional phase. The emphasis is increasingly on a robust and consumer-oriented regulatory framework.
- The current practices, instruments and mechanisms indicate an increased concern about the consequences of irresponsible lending for consumers and consequently for the economy as a whole.
Established in 2013, FinCoNet is a non-profit organisation made up primarily of regulators and public entities which have a financial market conduct and financial consumer protection supervision mandate. It was established in response to the growing focus in financial consumer protection worldwide, and the need for better coordination among supervisory bodies responsible for the oversight of the various national financial consumer protection regimes. Going forward the organisation will continue to focus on consumer credit and banking issues, aiming to strengthen consumer confidence while reducing systemic risk.
Bernard Sheridan, Chair of FinCoNet and Director of Consumer Protection with the Central Bank of Ireland said “Supervisory authorities can play a very important role in protecting the interests of consumers, particularly in the area of responsible lending. While responsible lending obligations and approaches have developed significantly over the past ten years, nonetheless, the global financial crisis has drawn attention to the importance of financial consumer protection, particularly responsible lending, as a component of a stable financial system.
We would encourage all supervisory authorities to consider the findings of this report and application of the good practice observations. FinCoNet will continue to collaborate with international organisations and provide supervisory authorities with a global platform to share best practices, experiences and lessons while promoting fair and transparent market practice. FinCoNet is open to new members and I would encourage supervisory authorities to consider joining the organisation by contacting the Chair’s office at finconet@central bank.ie.”
Download the report Responsible Lending – a Review of Supervisory Tools for Consumer Lending Practices (pdf)
Contact the FinCoNet Secretariat finconet@central bank.ie
More details about FinCoNet
FinCoNet is an organization of financial consumer protection supervisory authorities from around the world. At its annual meeting on November 14, 2013, in Lisbon, Portugal, the International Financial Consumer Protection Organisation (FinCoNet) was formally established as a non-profit organization. Bernard Sheridan of the Central Bank of Ireland was nominated as the first Chair, and Lucie Tedesco, Commissioner of FCAC, was nominated as Vice-Chair.
FinCoNet’s aim is to promote sound market conduct and strong consumer protection through efficient and effective financial market conduct supervision. Focusing on banking and credit consumer protection, it will collaborate with other international bodies and contribute to advancing the G20’s financial consumer protection agenda.
Additional information on FinCoNet and its Governing Council is available through the Central Bank of Ireland. The website for the FinCoNet International Financial Consumer Protection Organisation is maintained by the OECD and adheres to the terms and conditions for webite usage as determined by the OECD.
FinCoNet Annual General Meeting, 27-29 October 2014, Shanghai, China
FinCoNet publishes report on responsible lending, July 2014
FinCoNet: Advancing the Financial Consumer Protection Agenda
FinCoNet Newsletter - Issue No.1, Feb 2014
FinCoNet’s initial focus is on consumer credit and banking issues, aiming to strengthen consumer confidence while reducing systemic risks. Banking and credit in particular play such an important part in the lives of so many consumers that supervisory authorities must work together and support each other to help develop strong consumer protection frameworks.
We are assessing the strengths and weaknesses of existing institutional arrangement models of supervisory authorities and identifying effective approaches that can assist financial consumer protection supervisors in carrying out their responsibilities.
Looking to raise international standards, the organisation will also examine how supervisory tools can ensure responsible lending takes place.
Members are currently considering:
- Mystery shopping
- Mortgage credit lending in the EU
- Mortgage arrears – framework to protect borrowers
- Research on licensed moneylenders
- New EU rules on payment services
- UK consumer credit new regulatory regime
- Mobile payments and consumer protection
- Bank bundling and tying clauses
- Incentives paid to intermediaries in the credit market