Menu Expand

Systemic Usury and the European Consumer Credit Directive

  1. Journals
  2. Economics, Finance, Business & Management
  3. Vierteljahrshefte zur Wirtschaftsforschung
  4. Vol. 89, Issue 1
  5. pp. 115–132

JOURNAL ARTICLE

Cite JOURNAL ARTICLE

Style
Neuberger, D., Reifner, U. Systemic Usury and the European Consumer Credit Directive. Vierteljahrshefte zur Wirtschaftsforschung, 89(1), 115-132. https://doi.org/10.3790/vjh.89.1.115
Neuberger, Doris and Reifner, Udo "Systemic Usury and the European Consumer Credit Directive" Vierteljahrshefte zur Wirtschaftsforschung 89.1, , 115-132. https://doi.org/10.3790/vjh.89.1.115
Neuberger, Doris/Reifner, Udo: Systemic Usury and the European Consumer Credit Directive, in: Vierteljahrshefte zur Wirtschaftsforschung, vol. 89, iss. 1, 115-132, [online] https://doi.org/10.3790/vjh.89.1.115
Format
Download

Systemic Usury and the European Consumer Credit Directive

Neuberger, Doris | Reifner, Udo

Vierteljahrshefte zur Wirtschaftsforschung, Vol. 89 (2020), Iss. 1 : pp. 115–132

4 Citations (CrossRef)

Read Now Download (PDF)

Additional Information

Article Details

Publisher Name
Duncker & Humblot
DOI
https://doi.org/10.3790/vjh.89.1.115
Language
English
Pages
18
Keywords

Author Details

Doris Neuberger, University of Rostock, German Institute for Economic Research DIW Berlin

Udo Reifner, Institute for Financial Services iff Hamburg

  • Prof. Dr. Udo Reifner (1948) studied sociology and law in Berlin and Marburg. He is founder and long term Director of the independent institute for financial services (iff reg. ass.). In 1981 he became a professor of commercial law and sociology of law at the Hamburg University of Economics and Politics which became the Department of Socio-Economics at Hamburg University. After his retirement he obtained a chair at Trento University law faculty in Italy. He was guest professor with a focus on financial consumer law at McGill University, Montreal (1986), Université de Louvain-la-Neuve (1990), De Paul University, Chicago (1994), Birmingham University (1997), New York University (Spring 2000). The International Association of Consumer Law awards a price to young scholars in his name. In 2017 he summarized his interdisciplinary research and more than 280 publications many of them in English in four volumes on “money” entitled (1) economics of money, (2) sociology of money, (3) law of money and (4) financial crisis. He recently cofounded the Coalition against Usury in Germany (www.stopwucher.de). He was president of the EU financial user committee and served from 2013 – 2018 as an expert in the advisory board to the German Financial Services Authorities (BAFIN). He is presently attorney at law and research director at iff.
  • Email
  • Search in Google Scholar

Cited By

  1. Verbraucherkreditzinsen und Zinsobergrenzen bei steigendem Zinsniveau

    Neuberger, Doris

    Vierteljahrshefte zur Wirtschaftsforschung, Vol. 92 (2023), Iss. 3 P.75

    https://doi.org/10.3790/vjh.92.3.75 [Citations: 0]

  2. Kann guter Verbraucherschutz finanzielle Bildung ersetzen?

    Peters, Sally | Roggemann, Hanne

    Vierteljahrshefte zur Wirtschaftsforschung, Vol. 90 (2021), Iss. 1 P.125

    https://doi.org/10.3790/vjh.90.1.125 [Citations: 0]

  3. Usury vulnerability: measuring and modelling the phenomenon in Italy

    Stefanizzi, Sonia | Lysova, Tatiana

    Quality & Quantity, Vol. 58 (2024), Iss. 4 P.3845

    https://doi.org/10.1007/s11135-024-01841-w [Citations: 0]

  4. Verantwortliche Vergabe von Ratenkrediten durch Banken; Konzeption, Praxis und Potenziale

    Größl, Ingrid | Peters, Sally

    Vierteljahrshefte zur Wirtschaftsforschung, Vol. 88 (2019), Iss. 4 P.103

    https://doi.org/10.3790/vjh.88.4.103 [Citations: 2]

References

  1. Ards, Sheila D., Inhyuck Steve Ha, Jose Luis Mazas, and Samuel L. Myers (2015): Bad Credit and Intergroup Differences in Loan Denial Rates. The Review of Black Political Economy, 42(1 – 2), 19 – 34.  Google Scholar
  2. ASB (2019): Over-indebtedness Report Austria 2019, ASB Schuldnerberatungen GmbH, Linz. https://www.schuldenberatung.at/downloads/fachpublikum/asbFactSheet_SR19_Overindebtedness-Report-Austria.pdf (retrieved: November 21, 2019).  Google Scholar
  3. ASCI-AFM (2019): Disclosure: Why it shouldn’t be the default, A joint report from the Australian Securities and Investments Commission (ASIC) and the Dutch Authority for the Financial Markets (AFM) (October 2019). https://download.asic.gov.au/media/5303322/rep632-published-14-october-2019.pdf (retrieved: November 21, 2019).  Google Scholar
  4. Avery, Robert B., and Katherine A. Samolyk (2011): Payday Loans versus Pawn Shops: The Effects of Loan Fee Limits on Household Use (September 9, 2011). Available at SSRN: https://ssrn.com/abstract=2634584 or http://dx.doi.org/10.2139/ssrn.2634584.  Google Scholar
  5. BaFin (2017): Ergebnisbericht zur Marktuntersuchung Restschuldversicherungen. Bundesanstalt für Finanzdienstleistungsaufsicht, Berlin, 21. 06. 2017.  Google Scholar
  6. Baker, Justice David, and Mackenzie Breitenstein (2010): History repeats itself: Why interest rate caps pave the way for the return of the loan sharks. Banking Law Journal, 127, 581 – 603.  Google Scholar
  7. Banque de France (2014): Study of Paths Leading to Over-Indebtedness. Directorate General, Cash Management and Branch Network Activities Consumer Affairs, Research and Projects Department, Paris.  Google Scholar
  8. Bayer, Patrick, Fernando Ferreira, and Stephen L. Ross (2018): What Drives Racial and Ethnic Differences in High-Cost Mortgages? The Role of High-Risk Lenders. The Review of Financial Studies, 31(1), 175 – 205.  Google Scholar
  9. Becker, Gary S. (1957): The Economics of Discrimination, University of Chicago Press, Chicago, IL.  Google Scholar
  10. Belleflamme, Paul, and Martin Peitz (2015): Industrial Organization – Markets and Strategies. 2nd edition, Cambridge University Press, Cambridge.  Google Scholar
  11. Bentham, Jeremy (1787): Defense of usury; shewing the impolicy of the present legal restraints on the terms of pecuniary bargains. London: T. Payne and Son.  Google Scholar
  12. Bertrand, Marianne, and Adair Morse (2011): Information disclosure, cognitive biases, and payday borrowing. Journal of Finance, 66, 1865 – 1893.  Google Scholar
  13. Boot, Arnoud W. A. (2000): Relationship Banking: What Do We Know? Journal of Financial Intermediation, 9, 7 – 25.  Google Scholar
  14. Caplovitz, David (1963): The poor pay more: Consumer practices of low- income families. New York: Free Press.  Google Scholar
  15. Caskey, John P. (2010): Payday lending: New research and the big question. Working paper, Federal Reserve Bank of Philadelphia.  Google Scholar
  16. CCD (2008): Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers and repealing Council Directive 87/102/EEC. Official Journal of the European Union, L 133/66, 22. 5. 2008.  Google Scholar
  17. Civic Consulting (2013): The over-indebtedness of European households: updated mapping of the situation, nature and causes, effects and initiatives for alleviating its impact – Part 1: Synthesis of findings, Berlin.  Google Scholar
  18. Coco, Giuseppe, and David de Meza (2009): In defense of usury laws. Journal of Money, Credit and Banking, 41, 1691 – 1703.  Google Scholar
  19. ECRC (2014): Principles of Responsible Credit. https://www.responsible-credit.net/index.php?id=2516 (retrieved: November 21, 2019).  Google Scholar
  20. Friedman, Milton (1957): The Permanent Income Hypothesis. A Theory of the Consumption Function. Princeton University Press.  Google Scholar
  21. Größl, Ingrid, and Sally Peters (2019): Verantwortliche Vergabe von Ratenkrediten durch Banken; Konzeption, Praxis und Potenziale, Vierteljahrshefte zur Wirtschaftsforschung/Quarterly Journal of Economic Research, 88(4), 103 – 114.  Google Scholar
  22. Hecker, Christian (2019): “Ex contingente necessarium …” (M. Luther) – Der ökonomische Kern moralphilosophischer Zinskritik. Vierteljahrshefte zur Wirtschaftsforschung/Quarterly Journal of Economic Research, 88(4), 23 – 38.  Google Scholar
  23. Kau, James B., Donald C. Keenan, and Henry J. Munneke (2012): Racial Discrimination and Mortgage Lending. Journal of Real Estate Financial Economics, 45, 289 – 304.  Google Scholar
  24. Labat, Alyssa, and Walter E. Block (2012): Money does not grow on trees: An argument for usury. Journal of Business Ethics, 106, 383 – 387.  Google Scholar
  25. Li, Mingliang, Kevin J. Mumford, and Justin L. Tobias (2012): A Bayesian analysis of payday loans and their regulation. Journal of Econometrics, 171(2), 205 – 216.  Google Scholar
  26. Lindley, James T., Edward B. Selby, and John D. Jackson (1984): Racial Discrimination in the Provision of Financial Services. The American Economic Review, 74 (4), 735 – 741.  Google Scholar
  27. Lombardi, Marco, Madhusudan Mohanty, and Ilhyock Shim (2017): The real effects of household debt in the short and long run. BIS Working Papers No. 607. Bank for International Settlements.  Google Scholar
  28. Mayer, Robert (2013): When and Why Usury Should be Prohibited. Journal of Business Ethics, 116, 513 – 527.  Google Scholar
  29. Melzer, Brian T. (2011): The real costs of credit access: Evidence from the payday lending market. Quarterly Journal of Economics, 126, 517 – 555.  Google Scholar
  30. Mill, John Stuart (1891): Principles of Political Economy. London: Longmans, Greens and Co. People’s Edition.  Google Scholar
  31. Modigliani, Franco, and Richard H. Brumberg (1954): Utility analysis and the consumption function: an interpretation of cross-section data. In: Kenneth K. Kurihara, ed., Post-Keynesian Economics, New Brunswick, NJ. Rutgers University Press, 388 – 436.  Google Scholar
  32. Morse, Adair (2011): Payday lenders: Heroes or villains? Journal of Financial Economics, 102, 28 – 44.  Google Scholar
  33. OECD (2011): G20 High-level Principles on Financial Consumer Protection. Organisation for Economic Co-operation and Development, Paris, October 2011.  Google Scholar
  34. Posner, Eric A. (1995): Contract law in the welfare state: A defense of the unconscionability doctrine, usury laws, and related limitations on the freedom to contract. Journal of Legal Studies, 24, 283 – 319.  Google Scholar
  35. Reifner, Udo (2017a): Das Geld Band 2: Soziologie des Geldes – Heuristik und Mythos. Springer, Wiesbaden.  Google Scholar
  36. Reifner, Udo (2017b): Die Finanzkrise – Für ein Wucher- und Glücksspielverbot. Springer, Wiesbaden.  Google Scholar
  37. Reifner, Udo (2018): Responsible Credit in European Law. The Italian Law Journal, 4(2), 421 – 448.  Google Scholar
  38. Reifner, Udo, Damon Gibbons, Doris Neuberger, and Christine Riefa (2019): Evaluation of Directive 2008/48/EU with regard to the spread of Usurious Credit in Europe. Paper mandated by the German Coalition against Usury in connection with the European Coalition for Responsible Credit (ECRC), Hamburg.  Google Scholar
  39. Reifner, Udo, Elena Pérez-Carillo, Kai-Oliver Knops, Achim Tiffe, Sebastien Clerc-Renaud (2006): Analysis of the Economic Impact of Directive 2002/65/EC concerning the distance marketing of consumer financial services on the conclusion of cross-border contracts for financial services between suppliers and consumers within the Internal Market Final Report. Institut für Finanzdienstleistungen to DG Sanco, Project No. SANCO/2006/B4/034.  Google Scholar
  40. Reifner, Udo, and Michael Schroeder (2012): Usury Laws – A legal and economic Evaluation of Interest Rate Restrictions in the European Union. BoD: Norderstedt.  Google Scholar
  41. Reifner, Udo, Marcus Wüst, Leo Haida, and Carole Bonhomme (1998): Harmonisation of Cost Elements of the Annual Percentage Rate of Charge, APR. Project No.: AO-2600/97/000169, Hamburg, http://www.responsible-credit.net/media.php?t=media&f=file&id=2221 (retrieved: November 21, 2019).  Google Scholar
  42. Robb, Alicia, and David T. Robinson (2018): Testing for racial bias in business credit scores. Small Business Economics, 50, 429 – 443.  Google Scholar
  43. Schumann, Jochen, Ulrich Meyer, and Wolfgang Ströbele (2011): Grundzüge der mikroökonomischen Theorie. Berlin, Heidelberg: Springer.  Google Scholar
  44. Ulbricht, Dirk, Michael Feigl, Ulrike Freistedt, Sally Peters, and Gideon Schacht (2019): Faire Kreditvergabe. iff institut für finanzdienstleistungen, Hamburg.  Google Scholar
  45. Ulbricht, Dirk, and Sally Peters (2018): iff-Überschuldungsreport 2018. Überschuldung in Deutschland. iff institut für finanzdienstleistungen, Hamburg.  Google Scholar

Abstract

Summary: Usury is a frequent occurrence in consumer credit markets and particularly affects low-income households. Although the term usury conjures images of a greedy individual consciously acting to exploit the weak bargaining position of another by deceitful and even fraudulent means, we consider it as a systemic issue: as a problem of social discrimination, where belonging to a group which is statistically discriminated against leads to entrapment in a chain of usurious credit and financial contracts.

This paper reviews the economic rationale for usury legislation and evaluates the European Consumer Credit Directive 2008/48/EC in this context. It identifies systemic usury as the product of market failure: the most powerful explanations for which are monopoly power, where the consumer is locked in a bilateral credit relationship; discrimination through risk-based pricing, and negative externalities. Contrary to the main focus of the European Consumer Credit Directive, improved disclosure of contract terms and other relevant information to consumers at the point of contracting cannot address systemic usury in credit markets. Even fully informed consumers can be discriminated against and become trapped in a situation of bilateral monopoly. As a consequence, the Directive is found to be ineffective: it implicitly acknowledges usurious practices and products as legal and undermines the national fight against usury. The Directive must be reformed.

Table of Contents

Section Title Page Action Price
Doris Neuberger, and Udo Reifner: 115
 Systemic Usury and the European Consumer Credit Directive 115
1 Introduction 116
2 Systemic Usury as Market Failure in Consumer Credit Markets 117
2.1 Monopoly Power 118
2.2 Discrimination Through Risk-based Pricing 120
2.3 Negative Externalities 121
2.4 Imperfect Information Provided to Consumers 122
3 Evaluation of Directive 2008/48/EC with Regard to the Spread of Usurious Credit in Europe 123
3.1 Background to the Directive and its Relationship to Usury 123
3.2 Arbritary Definitions of ‘Interest’ 115
3.3 Lack of a Consistent Payment Plan 115
3.4 Total Harmonisation 115
3.5 Evaluation of the 2008 Directive 115
3.6 Usurious Credit in Practice 115
3.7 What Do Consumers Need? 115
4 Conclusions 115
References 115

Contact

Duncker & Humblot GmbH Carl-Heinrich-Becker-Weg 9 12165 Berlin, Deutschland T: +49 30 790006-0

Quick Navigation

2024 Duncker & Humblot GmbH

Powered by CloudPublish

We use cookies to ensure that you get the best experience on our website. Learn more about how we use cookies.