Social justice debates
This subsection places consumer credit within the wider social justice debate in contract law, which highlights the limitations of information as the sole tool to achieve consumer protection. Consumer credit forms part of contract law, which is based upon the basic, and in a sense conflicting, principles of autonomy and solidarity. While liberalism is often associated with contractual freedom, information, and the binding force of the contract, solidarity is linked with the idea of fairness, the duty of good faith, as well as compulsory provisions to protect the weaker party.
The new 2008 directive on credit agreements is a clear advance in protecting consumers by increasing the amount of information that the lender has to provide in credit agreements. In this regard, the directive seems inspired by the liberal proponents who, in general, prefer information provisions to substantive mandatory law, as a lighter form of intervention. In particular, some scholars argue that an under-estimation of the consumer’s own abilities to make an adequate judgement leads to overprotective regulation and might encourage careless behaviour. According to them, social protection of consumers creates an unnecessary financial burden for society, which is ultimately paid by the consumer.
However, behavioural economics has shown that consumers are not always able to take rational decisions, and are often manipulated by advertising.
Furthermore, information per se may not help consumers as too much information may lead to ‘information overload’, decreasing the ability of consumers to make rational choices. Hence, special attention should be given to the way information is presented and received, not just to the amount of it,57 requiring, for example, that contractual terms are drafted in plain and understandable language.
This argument has been extended further by some scholars who have noted that information disclosure does not provide a coherent standard of fairness.58 It also does not take account of a social dimension in contract law.59 If consumers fail to behave in an alert and rational manner, regulatory intervention based upon information disclosure may not yield the intended benefits.60 Particularly vulnerable groups in society, such as elderly people or uneducated consumers, do not meet the regulator’s model of an attentive consumer.
However, the right to information and the right to fair contractual conditions are complementary rather than alternative. Adequate information and fairness could constitute two pillars of a consumer credit regulation,61 able to re-establish an equitable equilibrium between contractual parties,62 and thus promoting consumer participation in financial markets.63
The concept of capability is ideally placed to realize this synthesis. Deakin arrives at similar conclusions for labour law, where he proposes the idea of
Kuysar, ‘Taking Behavioralism Seriously: Some Evidence of Market Manipulation’, (1999) 112 Harv. L. Rev., p. 1420.
- 57 Consumers lack knowledge of their rights and often do not read or understand the small print in contracts; see the study of E. Kempson, S. Collard, & N. Moore, ‘Measuring Financial Capability: An Exploratory Study for the Financial Services Authority’ , in ECRI, Consumer Financial Capability: Empowering European Consumers (Brussels: ECRI, 2006), pp. 56-67.
- 58 Howells & Wilhelmsson, EC Consumer Law (n 24); Howells & Wilhelmsson, ‘Private Law in the EU: Harmonized or Fragmented Europeanization?’, (2002) 10 Eur. Rev. Private Law, p. 77; Weatherill (n 25), p. 84.
- 59 U. Mattei & F.G. Nicola, ‘A “Social Dimension” in European Private Law? The Call for Setting a Progressive Agenda’, (2007) 7 Global Jurist (Frontiers); G. Alpa, ‘New Perspectives in the Protection of Consumers: A General Overview and some Criticism on Financial Services’, (2005) 16 Eur. Bus. L. Rev. , p. 722.
- 60 See e.g. G. Howells, ‘The Potential and Limits of Consumer Empowerment by Information’,
- (2005) 32 J. Law and Society, pp. 349-70.
- 61 Reich and Micklitz, Europdisches Verbraucherrecht (n 24), p. 45.
- 62 S. Deakin, ‘ ‘ ‘Capacitas”: Contract Law and the Institutional Pre-conditions of a Market Economy’, (2006) 3 Eur Rev. Contract Law, pp. 319-28; M. Hesselink, ‘Capacity and Capability in European Contract Law’, AMCLE WP No. 2005-09.
- 63 See ECRI, Consumer Financial Capability: Empowering European Consumers (Brussels: ECRI, 2006).
contract ‘capacity’, defined as ‘a status conferred by law for the purpose of empowering the holder to participate in the operations ofthe market economy’. Strengthening capabilities would not only enhance consumer information, an objective already considered by the 2008 directive, but could also address the issues of unfair contractual terms and over-indebtedness from a broader perspective: that is, by seeing them as social justice issues—something which is instead beyond the scope of the directive. The next sections will explore whether fundamental rights and alternative measures might help to move in this direction.
-  F. Nicola & U. Mattei, ‘A Social Dimension in European Private Law? The Call for Setting aProgressive Agenda’, (2006) 41 New England L. Rev., pp. 1-66; Study Group on Social Justice in EuropeanPrivate Law, ‘Social Justice in European Contract Law: A Manifesto’, (2004) 10 Eur. L. J., p. 653.
-  See S. Grundmann, ‘Information, Party Autonomy and Economic Agents in EuropeanContract Law’, (2002) 39 CML Rev., p. 269.
-  See e.g. H. Kotz & A. Flessner, European Contract Law, Vol. 1: Formation, Validity, and Contentof Contracts; Contract and Third Parties (Oxford: Clarendon Press , 1998), p. 129; and T. Hartlief,‘Freedom and Protection in Contemporary Contract Law’, (2004) 27J. Consumer Policy, pp. 258 et seq.
-  Kotz & Flessner, European Contract Law, Vol. 1: Formation, Validity, and Content of Contracts;Contract and Third Parties (n 54), p. 129.
-  See C. Sunstein (ed.), Behavioural Law and Economics (Cambridge: CUP, 2000). On producermanipulation of irrationalities in consumer information processing, see J.D. Hanson & D.A.
-  S. Deakin, “Capacitas” (n 62), p. 319.