Over-Indebtedness Prevention and the Principles of Social Economy in the Consumer Credit Market

Abstract

Effective counteracting of over-indebtedness requires reshaping the relationship between consumers and lenders in accordance with the principles of social economy. This will bring benefits not only to consumers and society as a whole, but also to lenders themselves, who in the longer term may experience the positive financial effects of such action. This paper analyses the indicators of consumer over-indebtedness and the instruments for counteracting this phenomenon, formulating, based on this analysis, a postulate of changing the lenders’ approach in accordance with the principle of social economy, under which profit does not constitute the overriding objective. To this end, the subjective and objective indicators of over-indebtedness are discussed, and the instruments for counteracting it are classified into three groups: preventive (education, information, creditworthiness assessment), remedial (debt restructuring), and sanctioning (the free credit sanction, the forgiven credit sanction, restrictions on the enforcement and transferability of receivables) – indicating to what extent the principles of social economy influence their effectiveness. Furthermore, the paper constitutes a proposal for lenders to revise their internal policies in the spirit of social economy – based on the premise that only the combination of statutory regulation with an appropriate attitude of lenders will enable effective counteracting of consumer over-indebtedness.