Systemic usury and the European Consumer Credit Directive

Doris Neuberger and Udo Reifner

No 161, Thuenen-Series of Applied Economic Theory from University of Rostock, Institute of Economics

Abstract: Usury is a frequent occurrence in consumer credit markets and particularly affects low-income households. Although the term usury conjures images of a greedy individual consciously acting to exploit the weak bargaining position of another by deceitful and even fraudulent means, we consider it as a systemic issue: as a problem of social discrimination, where belonging to a group which is statistically discriminated against leads to entrapment in a chain of usurious credit and financial contracts. This paper reviews the economic rationale for usury legislation and evaluates the European Consumer Credit Directive 2008/48/EC in this context. It identifies systemic usury as the product of market failure: the most powerful explanations for which are monopoly power, where the consumer is locked in a bilateral credit relationship; discrimination through risk-based pricing, and negative externalities. Contrary to the main focus of the European Consumer Credit Directive, improved disclosure of contract terms and other relevant information to consumers at the point of contracting cannot address systemic usury in credit markets. Even fully informed consumers can be discriminated against and become trapped in a situation of bilateral monopoly. As a consequence, the Directive is found to be ineffective: it implicitly acknowledges usurious practices and products as legal and undermines the national fight against usury. The Directive must be reformed.

Keywords: discrimination; Consumer Credit Directive; incomplete information; payment protection insurance; overindebtedness; monopoly power; responsible lending; risk-based pricing; usury (search for similar items in EconPapers)
JEL-codes: D14 D18 D42 D62 D63 G21 G28 K15 K22 K33 L12 L14 (search for similar items in EconPapers)
Date: 2019, Revised 2019
New Economics Papers: this item is included in nep-com, nep-ias, nep-law and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/209120/1/wp161thuenen-rev.pdf (application/pdf)

Related works:
Journal Article: Systemic Usury and the European Consumer Credit Directive (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:roswps:161

Access Statistics for this paper

More papers in Thuenen-Series of Applied Economic Theory from University of Rostock, Institute of Economics Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics (econstor@zbw-workspace.eu).