Financial Capability and Over-Indebtedness

With the reduction of the welfare state, access to financial services has gained new significance as a service of general interest for consumers. For example, access to a basic payment account is nowadays a precondition to obtaining a number of essential goods and services. The importance of this is also demonstrated by a current legislative initiative, at EU level, on access to banking accounts as a measure of financial inclusion for consumers.[1] Similarly, consumer credit is now used, to a growing extent, as a means of funding basic services, such as education and healthcare.[2] Paradoxically, it is in affluent societies in particular that financially disfavoured consumers can suffer from exclusion, as they struggle to afford services and goods that are commonly viewed as essential requirements in society. At the same time, the wider use of credit and financial instruments has also created new challenges for the consumer, for example by increasing the risk of over-indebtedness.

In the legal literature, calls to tackle financial exclusion have intensified in the last decade.[3] Consequently, the question arises concerning which legal mechanisms would encourage the access of consumers in the credit market and also fight over-indebtedness? This section examines how current EU financial services regulation could be complemented. Specific legal models will be explored, such as social lending and consumer bankruptcy, which exemplify how the capability approach could be applied to extend market participation to otherwise disadvantaged groups.

  • [1] Proposal for a Directive on the comparability of fees related to payment accounts, paymentaccount switching and access to payment accounts with basic features, COM(2013)0266 final -2013/0139 (COD); see also the Commission Recommendation on access to a basic paymentaccount, C(2011) 4977/4.
  • [2] C. Williams & J. Windebank, ‘The “Excluded Consumer”: A Neglected Aspect of SocialExclusion’, (2002) 30 Policy and Politics, p. 501; I. Ramsay, ‘Consumer Law, Regulatory Capitalismand the “New Learning” in Regulation’, (2006) 28 Sydney L. Rev., p. 30.
  • [3] P. Cartwright, Banks, Consumers and Regulation (Oxford: Hart Publishing , 2004), p. 214; T.Wilhelmsson, ‘Services of General Interest and European Private Law’, in C. Rickett & T. Telfer(eds), International Perspectives on Consumers’ Access to Justice (Cambridge: CUP, 2003), pp. 149-66;Ramsay, ‘Consumer Law, Regulatory Capitalism and the “New Learning” in Regulation’ (n 109),p. 29.
 
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