Societal Challenges to be Treated Collectively
Due to its human and economic stakes, over-indebtedness is an issue affecting individuals and companies, but also states. Various levers can be activated, and multiple actors need to be involved to face the challenge of over-indebtedness in all its aspects: financial education, prevention and support measures to overindebted people.
Solutions at the state level
Governments, local communities and regulators hold an essential role in all the stages of the fight against over-indebtedness. Indeed, they dispose of the means that allow them to reach the entire population and positively affect the situation.
Some states are quite proactive on the issue, such as Belgium, Spain, and Italy, where census files of potential borrowers exist, indicating all credits taken by a person. Among others, this allows banks to know the history and assets of a client before granting them loans, thus avoiding additional credits that could lead to a critical situation. In France, the 2000 Lagarde Law introduced a stricter framework for consumer loans and imposes more transparency to clients, notably by imposing the offer of fee-free alternatives to renewable credits. An investigation led by the National Agency for the Protection of Consumers and Users however revealed in 2016 that they were scarcely respected, and even breached to the detriment of the client: certain brands couple fee-free loans with the subscription to fidelity programs and a client card which does give access to revolving credit in the form of "money reserves". Similarly, in the United Kingdom, the credit registry is used by certain loaning agencies to impose higher interest rates to more vulnerable clients.
States thus have a wide scope for manoeuvre, as well as an important responsibility in the matter of over-indebtedness, but, as credit remains a key driver of growth and consumption, the topic of its management can be a sensitive one. Moreover, laws and regulations, rarely respected and often constraining, do not allow the prevention of all abuses linked to the credit market.
FINANCIAL EDUCATION
In Luxembourg, the CSSF (Commission for the Surveillance of the Financial Sector) chose the path of awareness raising of the public to prevent over-indebtedness. It took the initiative, back in 2012, to form a committee for the protection of the financial consumer, following the example of other OECD members. In the framework of its mission, this committee published in 2015 a national strategy on financial education, which fixes several objectives for the country, such as the development of consumers’ financial knowledge, the promotion of responsible financial behavior and the preparation of the youth to an increasingly complex economic environment. The CSSF is working on two concretes projects in collaboration with other actors: a web portal as well as a mobile application for financial education are currently being developed.
SUPPORT
In Spain, over-indebted families are often evicted from their homes. Between 2007 and 2015, the General Council of the judiciary power had registered over 700.000 cases of evictions, amongst which around 500.000 were successful. In the face of this situation, a reform on the law on mortgage credits was proposed by popular legislative initiative. Blocked in Madrid, it was unanimously accepted by the parliament of Catalonia in July 2015. It offers families the chance to free themselves of debt with the application of the principle of payment in a different form and establishes a mechanism to interrupt evictions for tenants as well as home owners. The national government nevertheless deposed a recourse in front of the constitutional courts for what it considered a regional exception; in 2016, the law was suspended.
The role of corporations
Through the relations they have with their clients or employees, companies can be major actors in the prevention of over-indebtedness. Indeed, service providers (banks, credit agencies, energy or telephone providers...) are the first in line to detect their clients’ financial struggles, as soon as bills are overdue. Internally, employers can also make the choice to worry about the financial health of their employees.
For the company, it is a commitment imbedded in a wider societal responsibility approach and which takes into account the needs of its stakeholders, both internally and externally. Accounting for ones most vulnerable clients and employees thus allows to be distinguished from competitors, especially for credit agencies and the banking sector, which have an important share of responsibility in the matter of over-indebtedness. Such a commitment can also lead to a significant return on investment. Firstly, in terms of loyalty: for 64% of consumers, the company needs to commit to issues linked to its core business, and according to global study by Unilever, 33% of consumers now chose brands based on the environmental and/or social impact. Similar trends can be noted in employee retention rates: a survey led by Willis Tower Watson highlighted a direct correlation between employees’ financial problems and their performance at work through absent days, productivity and commitment.
FINANCIAL EDUCATION
In France, the organization CRESUS (acronym for Chambre Régionale du Surendettement Social, the Regional Chamber for Social Over-Indebteness) has developed the financial education game Dilemme since 2014. Built through collaborations with banking and finance professionals, the game aims to introduce youth aged 16 to 25 to the management of a budget, targeting professional high schools and training centers. In 4 years, over 400,000 interns have been trained by 611 ambassadors. The banks Société Générale and BNP Paribas recurrently participated as experts. “The use of the game Dilemme in our agencies creates a moment of conviviality and exchange which fosters a playful way to learn budget management with the whole family” explains Raphaèle Leroy, Manager for Consumer Relations and CSR of the retail bank of BNP Paribas.
Numerous similar initiatives exist across Europe: in Poland, Eurobank has developed a program called “Household Budget”, offering two platforms through which banking specialist share their expertise and insights with Polish consumers, supporting them in the reasonable use of banking services. In Luxembourg, the “Woch vun de Suen” (week of money) mobilizes many employees from the banking and financial sector to initiate primary school children to money matters. In addition, Société Générale grants its employees the opportunity to get involved with financial education in several countries in which the group is represented (Morocco, Albania, Czech Republic, Senegal…).
Using the expertise of the social and solidary economy
Plenty of companies, particularly in the financial sector, are committed to the promotion of financial education. These initiatives are however mostly reserved to the external aspects (general public, schools...), and whilst useful, remain on an ad hoc basis. By engaging in partnerships with specialized organizations and associations, companies have the possibility to work across all aspects of the fight against over-indebtedness: from upstream prevention to the support to already over-indebted individuals.
Actors of the social and solidary economy have a long-standing expertise on the issue, and in many European countries, organizations focusing on family and consumer support are the main contact points for people facing financial struggles.
PREVENTION
In France, Crésus created in 2010 an intermediation platform in partnership with several banking institutions, with the objective to identify vulnerable clients upstream. Its based on the contribution of two partners: the banks join forces with Crésus to co-create a system of referrents to identify at risk consumers and direct them toward the association’s tailored support platform. Crésus brings in its expertise in risk management and prevention. The partners improve their offers of responsible credit whilst reducing their costs associated to the processing of over-indebtedness cases. They also provide their teams with the opportunity to raise their skills in this domain and to reduce the psycho-social risks linked to the engagement with vulnerable clients. This offers a positive alternative to traditional debt collection. The results are convincing: 500,000 over-indebted households were informed and supports and 57 to 80% of them have lastingly exited their situation of over-indebtedness. In 2015, the platform worked with 65 partners, allowing them to recover 400 million euros on delayed payments.
FINANCIAL INCLUSION
In France, BNP Paribas acquired the Nickel account in 2017, a “bank-free account” that could be opened in just a few minutes in a corner store. These accounts target individuals in dire financial situations and serve over 700,000 clients, 60% of which earn minimum wage. The goal of Nickel is to find concrete solutions to poverty, financial exclusion and over-indebtedness through credit access and social support. That is why the account is open to all (even those facing bank bans) and offers low-cost and zero-overdraft solutions.
Collaborative workshops to face the challenge of over-indebtedness
From July to November 2017, a cycle of co-creative workshops was led by IMS Luxembourg in partnership with the Ministry for Work, Employment and the social and solidary Economy, ULESS and the 6zero1. The goal: gathering concerned stakeholders to initiate a dialogue and identify pathways for collaboration. Private companies, social and solidary enterprises, public bodies and social actors joined forces to reflect about three key stakes of the over-indebtedness issue.
The result: several tangible projects, amongst which a mobile app for financial education that is now being developed by the CSSF, as well a national awareness raising campaign.
Consult the IMS report on over-indebtedness in Luxembourg here.
To be read also in the dossier "Lives on Credit":