Consumer credit in Europe

Chapter 1 Introduction
1.1 Scope of study
The study aims to address the issue of household consumer credit behavior, being
based on a comprehensive comparison between different European countries. The
scope of the study encircles the development of consumer credit in Europe, the
country comparison being made from a longitudinal and horizontal perspective.
The study addresses the difference between consumer credit and mortgage debt,
presenting empirical studies on mortgage debt and also studies on consumer credit,
using the available data at the individual and household level. It also addresses the
imbalance in the existing research, presenting international comparisons of
consumer debt markets, their weak points and the factors that may influence
household consumer credit behaviors.
1.2 Problem statement
The development of consumer credit in Europe has been powerfully influenced by
the European Union directives. There were several changes that contributed
directly to the transformation of the regulatory framework of financial markets in
Europe. mong these changes, the reduction of economic state regulations in the
!"#$s %this measure took place in numerous industrialized countries&, the
elimination of capital movement restrictions and the appearance of a unified
market for all services related to finance, are worth mentioning.
'hen it comes to the consumer credit sector, the most important thing to take into
consideration is that there are noticeable differences between countries in Europe,
but also within national institutions. These differences come to light in the form of
practices encountered, including when addressing the matter of consumer
protection regulation. This has been a vivid sub(ect addressed in many European
countries, with two very important factors being taken into consideration) the cost
of the consumer credit and the annual percentage rate of change. In Europe,
consumer credit has benefitted from various governing directives, starting with
!"#* and continuing in the present, with amendments and completions.
If we were to define consumer credit, we could say that this is a form of debt that
someone will ac+uire, with the scope of purchasing services or various goods.
,onsumer credit includes, but is not limited to, credit cards, loans and credit lines.
It is also important to understand that the goods or services one intends to buy with
the aid of consumer credit have a +uickly depreciating value. This means that one
can purchase, for example a car or pay for a college course, with the help of such a
credit but certainly one cannot purchase real estate.
'hen talking about consumer credit, it is highly important to notice the difference
between such type of credit and the mortgage debt. 'hile in the first situation, the
amount of credit is used by a consumer to purchase goods or services, in the case
of mortgage debt there is a claim on property, the debt instrument being secured by
collateral in the form of real estate. There are certain conditions to fulfill for paying
back the amount owed and most of the time mortgages are perfect for purchasing
real estate, especially if you do not have sufficient money to pay up front.
s opposed to other types of credit, the consumer credit is not guaranteed and there
are several differences when it comes to governing tax provisions, as compared to
mortgage debt. The regulation of consumer credit differs from one country to the
other, as well as the ones for mortgages. -owever, it seems that mortgage interest
payments are deducted in countries such as Italy, -olland and .rance, while the
taxes for consumer credit are only deducted in -olland. s for /ermany, the
statistical data provided from national institutions cannot contribute to making a
clear difference between consumer and mortgage credit.
There have been many empirical studies made on mortgage debt, a large percent of
them not taking however into consideration the effect various fiscal instruments
have had on mortgage debt and the housing market. study on general EU
mortgage and housing market characteristics has shown the percentage of
mortgage debt in various European countries %from !0.01 of /23 in Italy to
""."1 of /23 in -olland& but also the real mortgage growth rate %4!.! in 3ortugal
to 5!.6 in Ireland& and the growth in real house prices %45." in ustria to !#.! in
U7&.
The studies made in the field of consumer credit do not provide sufficient
information regarding either the individual or the household level. -owever, in a
study regarding the credit to the private sector, as a percentage of /23, it has been
found that the ratio of credit varies between 8$1 and !5$1. The study analyzed
information from ten European countries) 9elgium, /ermany, :pain, /reece,
.rance, Italy, -olland, :weden, U7 and .inland. comparison was made with
;apan and the United :tates. <ot surprisingly, the U7 had the highest percentage of
/23 %!5=1& while /reece had the lowest %0$1&. The U: had a percentage of
!501 while ;apan provided a percentage of 5$$1. The study comprised
information from !"#$ to !""6.
1.3 Research aim
The aim of this paper is to provide a cross comparison of national provisions
concerning consumer credit in different European countries. lso, it focuses on
identifying the problems existent on the consumer debt markets and bringing out
information regarding consumer credit behaviors.
1.4 Research obecti!es
The research aim that was presented above can be detailed into the following
research ob(ectives that this paper will try to achieve. The attainment of the
research ob(ectives presented in detail below will guarantee the success of the
paper.
,onsumer credit markets comparison %from the point of structure and
development&
:tudy and determine the effectiveness of national practices in the matter of
consumer credit, in direct parallel with mortgage debt
<arrow down the shortcomings of international consumer markets,
analyzing existing and previous regulations
Identify countries where mortgage interest payments are deducted and also
countries where tax deductibility is allowed for consumer credit as well
3resent the dependent variables affecting the consumer credit development.