Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/200245 
Title: 

Systemic usury and the European Consumer Credit Directive

The document was removed on behalf of the author(s)/ the editor(s).

Year of Publication: 
2019
Series/Report no.: 
Thünen-Series of Applied Economic Theory - Working Paper No. 161
Publisher: 
Universität Rostock, Institut für Volkswirtschaftslehre, Rostock
Abstract: 
Usury is a frequent occurrence in consumer credit markets and particularly affects low-income households. Systemic usury exploits poverty by shifting usury into additional products and leveraging usury gains by stringing together individual loan agreements. This paper reviews the economic rationale for usury legislation and on this basis evaluates the European Consumer Credit Directive 2008/48/EC. Systemic usury is a market failure. The most powerful explanations for such failure in consumer credit markets are monopoly power, where the consumer is locked in a bilateral credit relationship, discrimination through risk-based pricing, and negative externalities, where the least solvent borrowers are cross-subsidized by the more solvent ones. Incomplete information of consumers cannot explain systemic usury in credit markets, because even fully informed consumers would be discriminated and trapped into a situation of bilateral monopoly. However, the European Consumer Credit Directive is primarily based on the model of incomplete information, which it seeks to correct by informational duties. As a consequence, usurious practices and products are implicitly acknowledged as legal, which has eroded the national combat against usury. Therefore, this Directive is not effective and must be reformed.
Subjects: 
discrimination
Consumer Credit Directive
incomplete information
payment protection insurance
overindebtedness
monopoly power
responsible lending
risk-based pricing
usury
JEL: 
D14
D18
D42
D62
D63
G21
G28
K15
K22
K33
L12
L14
Document Type: 
Working Paper

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The document was removed on behalf of the author(s)/ the editor(s) on: December 12, 2019


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