Responsible Lenders and Responsible Consumers

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Responsible Lenders and Responsible Consumers

• Prof. Dr. Udo Reifner
• institute for financial services (iff), Germany
• www.iff-hamburg.de
• Presentation at the 2009 OECD Corporate
  Responsibility Roundtable
• Consumer Empowerment and Responsible Business
  Conduct15 June 2009 (Monday), ParisParallel
  Session 3 Protecting and Educating Consumers in
  the Financial Sector

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Theses

• Consumer Power is derived from
• Consumer Rights
• Rules, Access to courts,
• Consumer Cartels
• Public opinion, corporate image, comparison
• Consumer Complaints
• Exit, Voice and Science
• Consumer Information and Education may help
• CSR can only offer opportunities for more
  consumer power

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Coalition for Responsible CreditCommunity
Reinvestment Coalitionwww.responsible-credit.net

• Further the idea of responsibility in credit
  banking and promote a set of principles for
  responsible credit fair lending.
• Organise and maintain a continuing dialogue among
  consumer money advice organisations, social
  welfare organisations trade unions, alternative
  financial institutions and other NGOs.
• Influence bank thinking, strategies, products and
  services to benefit underserved and excluded
  groups.
• Promote the production of research and
  transparency.
• Organise conferences and other forums that
  increase peoples and NGO understandings and
  abilities to promote fair access to lending
  products and services.
• Act as a collective voice for underserved people
  to the public with respect to financial services.

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European Coalition for Responsible Lending
(ECRC)Principles for Responsible Lending

• P1 Responsible and affordable credit must be
  provided for all.
• a. Credit is essential for people to participate
  fully in society b. Banks should not discriminate
  and should provide real access. c. Credit to
  Consumers and Small Businesses must be
  supervised.
• P2 Credit relations have to be transparent and
  understandable.
• a. Competitive transparency requires a
  standardized mathematically correct form of
  one-price disclosure (the Annual Percentage
  Rate of Charge or APRC). b. Social transparency
  requires a standardized pre-contractual payment
  plan.c. Consumers should be provided with
  adequate time for reflection and with access to
  independent advice. d. Consumers should have
  access to independent financial, credit and debt
  advice. e. Both parties in the credit markets
  have to take part in a mutually productive
  process of financial education
• P3 Lending has at all times to be cautious,
  responsible and fair.
• a. Credit and its servicing must be productive
  for the borrower b. Responsible lending requires
  the provision of all necessary information and
  advice to consumers and liability for missing and
  incorrect information. c. No lender should be
  allowed to exploit the weakness, need or naivety
  of borrowers. d. Early repayment, without
  penalty, must be possible. e. The conditions
  under which consumers can refinance or reschedule
  their debt should be regulated.
• P4 Adaptation should be preferred to credit
  cancellation and destruction.
• a. There is a need for effective protection
  against unfair credit cancellation. b. Default
  charges should be adequate to cover losses only.
• P5 Protective legislation has to be effective.
• a. Credit regulation has to cover all
  non-commercial users. b. Credit regulation has to
  cover all commercial forms of credit provision.
  c. Credit regulation has to cover the whole
  process of credit extension as experienced by its
  users. d. Credit regulation has to encourage
  efficient social and economic effects of credit
  extension.
• P6 Overindebtedness should be a public concern.
• a. Profit-driven systems cannot cope with
  over-indebtedness. b. Consumers should have a
  right to discharge. e. Bankruptcy procedures
  should lead to rehabilitation and not to
  retorsion.
• P7. Borrowers must have adequate means to defend
  their rights and be free to voice their concerns.
• a. There should be adequate individual as well as
  collective legal procedures to enforce borrowers
  rights. b. Critical public awareness is crucial
  for the development a fair and responsible
  distribution of credit and this requires
  disclosure of bank services and consumer credit
  lending patterns to disadvantaged communities.

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Students learn to

• understand the central functions of financial
  services and the most important terms behind
  financial services,
• recognize the key criteria in choosing financial
  services,
• know where to get relevant information from, and
  how to compare and judge them,
• comprehend ones own situation and circumstances,
  and be able to relate it to offers of financial
  service,
• know how to deal with financial difficulties,

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Financial education is not about learning

• to listen to banks,
• to think and act like a banker,
• to understand economic cycles,
• to get to know the financial alphabet (financial
  literacy),
• to be a good saver,
• to get to know which products do exist on the
  market.

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Mutual Learning

• Students learn to ask questions
• learn to critically reflect on offers of
  financial services
• ask for better conditions
• Ask for good advice and understandable
  explanations
• Bankers learn to listen
• Learn to answer only if they are asked
• Get to know the conumers problems interests and
  needs
• Learn to respond to the consumers questions and
  needs
• Teachers and partners improve their knowledge of
  financial services
• Project partners learn about young peoples needs,
  interests and requirements concerning financial
  services and how to improve financial services to
  better suit their needs

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Didactic

• Independent study in working groups
• From concrete case studies and products to an
  applied knowledge through practice
• Working on particular cases that refer to the
  problems, needs and interests of the students
• Real life situations banks as learning areas
  gtStudents ask, bankers answer