Michiel De Muynck

Credit cards, overdraft facilities and European consumer protection. A blank cheque for unfairness?

WP 2011-08

This contribution takes a close look at overdraft facilities, the most eccentric type of credit under the scope of Directive 2008/48 EC on credit agreements for consumers. Even in the absence of a 'smoking gun' linking consumer credit to personal insolvency, the tacit nature of this type of credit represents a significant 'spiral of debts' risk. Armed with some overdraft facility basics we provide several theoretical insights on imperfect markets for consumer finance and consumer (un)awareness and biases when contracting for money. Today's information requirements only partly capture the reality of Homo sapiens kind of borrowers. European consumer protection ought to safeguard consumers from behavior diverging from (perfect) rationality. It should therefore abandon narrow legal reasoning and include ethical, economical and social norms. In an attempt to reach a substantial information equilibrium we call for multi-layered and intelligent credit regulation incorporating aforementioned behavioral evidence. While such rules might be better aligned with product legislation, new IT solutions pave the way for targeted point of sale disclosure and tailored monthly statements. A strict regulatory dichotomy between regulation with regard to a consumer's assets (e.g. investor protection) and debts (e.g. consumer credit) seems superseded. The last part of our contribution shines a light on the evolved Belgian approach with regard to overdraft facilities, foreclosing an unlimited freedom of the market for price setting.