LA PALABRA Y SUS LETRAS

Similar to France, and in line with the Consumer Credit Directive, the Belgian legal framework sets rules to prevent misleading information being provided through advertising. Therefore, it is forbidden to disseminate the message that anyone can gain access to consumer credit regardless of financial difficulties and that access to credit can be quick and easy. Contractual rules require providers to provide clear and easily understandable documents which must contain the amount and duration of the credit, the annual percentage rate and the global cost. All these constraints are similar to those of other countries.

Financial education is limited in Belgium, except for information posted on generalist consumer websites or the work of the Indebtedness and Credit Observatory.57 _{Financial information in}

Belgium focuses on the tools available to lenders in order to assess the trustworthiness of a potential debtor.

Until 2003 lenders could only access a register of borrowers who had faced difficulties repaying their credit. In 2003 the register was expanded in order to collect information regarding the indebtedness of every borrower. The aim was to help lenders assess the ability of their potential customers to reimburse a new credit and to promote the prevention of overindebtedness. In order to ensure its effectiveness, lenders are obliged to check the Centrale des crédits

before granting a new credit, as well as providing information once they have granted a loan. The aim of such constraints is to ensure:

• that every lender is aware of the level of indebtedness of its customers and;

• that information is comprehensive and reliable.

In theory, if credit providers do not consult the credit register a court can write off all or part of the money borrowed.

The register is publicly run by the National Bank of Belgium to prevent this information being used for commercial purposes. Such a use is strictly forbidden by law. Furthermore, only credit providers are entitled to consult the register. This is to ensure that the central credit register does not have damaging social effects for people already highly indebted or with a history of financial difficulties (inability to access housing, a job, etc.). Although the Centrale des

créditsis publicly run, credit providers have to pay to consult it.

Has the Centrale des crédits achieved its aim of helping to prevent overindebtedness? It is very difficult to answer this question, for two reasons. First, in order to assess its impact a comparable situation without it would be needed. Such a comparison is not possible. Second, the Centrale des créditsis not the only element of the Belgian strategy to prevent overindebtedness. Therefore, there is no evaluation study available in Belgium to answer this question and the National Bank of Belgium as well as the Indebtedness and Credit Observatory are very careful when they have to give their opinion about its impact. However, some tentative conclusions can be drawn. An examination of the data regarding the number of people registered under the collective debt settlement procedure indicates that the Centrale des crédits does not seem to have had any significant impact on reducing the number of people who are overindebted (Figure 26). The numbers have increased systematically since 1999 (the year the procedure was established).

Figure 26: Number of people registered due to overindebtedness procedure

Source:Data from National Bank of Belgium

The data question the effectiveness of this tool in preventing overindebtedness. This lack of evidence may be explained by the fact that overindebtedness is a more complex phenomenon than just an accumulation of credit.

Nevertheless, the Centrale des credit has been effective in increasing access to credit in a less risky way. This can be illustrated by the ratio of “borrowers in arrears/ overall number of borrowers” (Figure 27).

Figure 27: Proportion of borrowers with one or more outstanding payment

The Centrale des créditshas contributed to the reduction of this ratio, from 7.98% in 2004 to 7.16% in 2008, while the number of borrowers increased by 9.7% and the number of credits by 18.3%. These figures show that while the Centrale des créditsfavours access to credit, the focus is on borrowers who already have access to credit and who are considered relatively safe. According to the lenders’ criteria, “good borrowers” may be targeted in order to increase their indebtedness and to sell them revolving credit. Such a hypothesis is supported by the fact that revolving credits increased by 22.7% between 2004 and 2008.

It is difficult to assess the impact of the Centrale des credits. However, the evidence suggests that the register has probably had no real impact in preventing overindebtedness. Nevertheless it does seem to have had real effects in increasing access to credit. However, this increase seems to be focused on people who already have access to credit. As a result, people who have access to credit are more indebted than they were before the Centrale des credits was established.

3.5.2.2 The right price

Similar to France, Belgium has a usury ceiling (several depending on the type of credit and the amount).

Table 4: Usury ceilings in Belgium

Instalment Revolving credit Revolving credit

credit with a card without a card

Less than €€1,250 19.5% 15% 11% Between €€1,250 and €€5,000 15% 13% 10% More than €€5,000 9.5%

Source:Ministry of Finance – July 2010

The higher level is applied to personal loans which are the most appropriate for people with a low income as they are easier to manage (stable amount of repayment each month). This makes personal loans more profitable for lenders than revolving credit

(which is less appropriate for borrowers). However, more statistical analysis is needed on this subject.

Regarding the difficulties of access created by a usury ceiling, it seems that the Centrale des créditsprovides an interesting answer as it reduces the cost of assessing the indebtedness of potential borrowers.