We want to ensure that credit providers (such as banks) act responsibly. That means: Credit providers act in the best interest of the customers and only give credit to consumers which can afford them.
But wait, can’t consumers simply decide for themselves what they need and what they can afford? In many cases, this is true. Ideally, consumers carefully consider every credit decision, get information upfront, compare different offers, sleep on it. Financial education at school and ample availability of advisory services can help increase the number of consumers that are capable of making such self-dependent decisions. That’s clearly a good thing.
However, things look very different when consumer are already facing financial difficulties. When there’s not enough money to get until the end of the month, or one cannot afford replacement for the broken washing machine, the only question is: Where can I get this money asap? Under such pressure, it is often impossible to make independent, well-informed and carefully weighed decisions. Some credit providers intentionally exploit the dire situation of such customers (or at least willingly accept it) and sell them over-expensive or inadequate credit products. Oftentimes, this drives consumers ever deeper into financial difficulties or even overindebtedness. This has to stop.
To sum up: To protect the most vulnerable consumers reliable from irresponsible business practices, information, transparency and financial education are just not enough. On top, we also need to hold credit providers accountable to take responsibility for their customers. Responsible lending must become mandatory for each and every provider – without loopholes. This is exactly what I stand up for.
⏩ Read more: A key element of responsible lending are creditworthiness assessments.