The consumer credit is the category of credit granted to individuals by banks or financial companies to finance the purchase of goods and services, such as the big spending in capital goods ( car , the equipment house ). For individuals this category of credit opposes the mortgageused to finance the acquisition of real estate. Compared to this category, it is characterized by lower loan amounts, a relatively short repayment period and the type of collateral required. When it comes to financing a capital good, the distribution (sale) is ensured most often by the seller of this good. In France, consumer credit is largely borne by specialized financial institutions and the sales process is heavily regulated by regulatory measures designed to limit overindebtedness . Consumer credit is generally repaid according to a schedule with periodic monthly payments.
The different types of consumer credit
The main categories for consumption are:
- the loan allocated (to a given expense), the best known of which are the car loan (vehicle purchase) and the student loan (study financing)
- the personal loan not linked to a specific expense,
- the credit standing staff, often associated with the use of a credit card .
- online credit via the Internet
We can assimilate
- the lease (or leasing)
- the leasing
Like any credit a consumer credit connects a financial institution, the creditor (lender) who lends to a borrower ( debtor ) an amount for a given period. Consumer credit has the following characteristics.
Consumer credit is for individuals. Other categories of bank customers, especially businesses and the liberal professions, finance their durable goods through other forms of credit.
The object financed by consumer credit is what distinguishes it from other credit categories. Personal loans have three main categories:
- The mortgage that finances the acquisition of real estate
- The cash credit that allows to deal with cash problems like the overdraft
- Consumer credit to finance durable goods other than real estate
In practice, the separation between cash and consumer credit is not so clear. A consumer credit can be subscribed without specifying the object financed which allows to use it to deal with cash flow problems. A revolving credit can be used both to deal with cash flow problems and to finance the acquisition of a property. The regulatory definition of consumer credit in France indicates that the amount is between € 200 and € 75,000, and the repayment term is longer than 3 months.
Risk Assessment and Guarantees
For a bank or a credit institution, the decision to grant this type of financing meets certain criteria:
- the situation of the borrower / borrowers: family composition, professional situation …
- Stable incomes: although a fixed-term contract is not necessarily crippling (or even a student’s status), a permanent contract or an official’s status will always be a decidedly positive point
- The debt ratio : total monthly or annual charges (outstanding loan installments + new loan requested … + rent) / total monthly or annual income (sustainable income / wages, property income / rental …). Although the figure of 33% is often known, it is nuanced in recent years, in favor of a comparative analysis with the following criterion. The “remainder to live”: how much remains to the borrower once all of his expenses paid? Indeed, this notion brings a complementary light to the notion of indebtedness.
To illustrate, let us dwell on the cases of Mr. X and Mr. Y:
- Mr. X earns 2000 euros per month, and has 700 euros monthly expenses, so he is in debt 35% (700/2000), however he lives in a city where the cost of living is reasonable, he is single without children. He remains to live 1300 euros per month to live (eat, dress, save …).
- Mr Y earns 6000 euros a month, his wife does not work to take care of their 4 children, they live in Paris. All of his expenses represent 2100 euros per month. His debt is also 35% (2100/6000), he has 3900 euros to live every month to support the needs of his wife and children, in addition, Paris life is significantly more expensive than elsewhere.
In this simple example, which borrower has the best position to qualify for a loan? The decisive factors will depend on his relationship with his banker, his pace of life … all factors more subjective but important to take into account.
Finally, the borrower must not have known any incident registered with the Bank of France:
- FCC record
- banking ban and / or FICP revealing repayment concerns in previous loans.
The sales procedure is based on several steps, whether it is during a meeting with his banker, or during a request made online on a specialized website:
- The collection of information about the borrower: his income, his assets, his family, the object of his request …
- The desired credit terms: amount, duration
- The lender’s proposal: proposed rate, optional insurance, administrative fees
- Prior Offer: This is the contractual document binding the lender and the borrower (see below). As a rule, the borrower has a withdrawal period of at least 7 days before the actual disbursement of the sum. Despite this, it is very common for the borrower to waive this right in order to speed up the process and collect the credit amount more quickly.
Terms of repayment
Reimbursement is most often in the form of constant monthly payments, during the entire duration initially desired. Unlike the mortgage loan, the prepayment does not give rise to the payment of an early termination fee by the lender.
Two special cases:
- the revolving credit (revolving) is granted to the borrower a maximum amount of money, a subject in which he can come pick regularly. The repayments of the sums borrowed then come to mechanically reconstitute the amount of the reserve available.
- The student loan: this funding formula is intended for students who can justify their situation (certificate of schooling, valid student card …) to finance their daily life or the price of their schooling, before returning In the active life. This type of financing is broken down into two distinct periods:
- The so-called “franchise” period, which generally corresponds to the student’s remaining period of study. During this period, which will not exceed two years most of the time, the borrower will only repay interest on the amount borrowed, or even the associated insurance (partial deferral period). For some cases (grandes écoles for example), the borrower may not refund anything (total deferred).
- The amortization period follows the franchise and sees the repayment of the credit start on the same basis as a conventional consumer loan.
Regulatory and Legal Framework
The prior offer must meet the requirements of the Consumer Code and correspond to one of the six models provided for by the Decree of May 14, 2007 1 . Refurbished mainly by the Law of 1 st July 2010, which follows the directive of the European Union , the consumer credit is defined in Article L.311-1 4 of the Consumer Codeas follows: “a transaction or a credit agreement, a transaction or contract by which a lender consents or undertakes to extend to the borrower a credit in the form of a payment term, a loan, included in the form of overdraft or other similar payment facility, with the exception of contracts concluded for the supply of a continuous or sequential performance of services or goods of the same kind and under which the borrower in principle the cost per installments throughout the duration of the supply ” 2 .
From the point of view of the sale of consumer credit, several legal devices are in place. It should be pointed out, in particular, in the case of direct distribution of credits by banks , the jurisprudential duty to warn.
In 2013, the evolution of this legal framework took a significant step, based on a better balance of the relationship between professional lender and borrower. Also, the focus is more on the methods of credit distribution, especially as the dissociation between risk managers ( credit institutions ) and sellers, such as brokers or Intermediaries in banking operations and in Payment services 3 is becoming more active. The bank is no longer the sole distributor of consumer credit, even if it bears the financial risks.
This development has made it possible to observe the emergence of a banking distribution law , the basis of which is the protection of consumers 4 .
This movement was confirmed in 2016 with the reform of the Consumer Code on home loans to individuals (Ordinance 2016-351 of 25 March 2016). All loans to individuals have a legal regime established on common bases, whether consumer loans or mortgages. In France, this regime settles in installments between 1 st July 2016 and 21 March 2019.
Suppliers of consumer credit in France
In France, two types of market players coexist as producers of consumer credit: specialized financing institutions that have the statutory right to market only banking products directly related to consumer credit ( Cetelem , Sofinco …) and the general banks ( Crédit Agricole , BNP Paribas …), which are the only ones able to market all types of banking products and which as such are the only ones to manage bank accounts. There are also captives of car manufacturers who offer credit and insurance offers. Finally, the subsidiaries of the distribution groups propose mainlypermanent credit . At the dawn of the 2010s there appeared the private lending institutions 5 (eg Union Loan ).
From the standpoint of the production of consumer credit, the market is dominated in France by specialized financing institutions which hold about 60% of the market (in production or outstanding): this market share is acquired by a strong presence at places of consumption thanks to a very dense network of prescribers (distribution stores) and a credit policy that is much less selective than generalist banks, of which they are nevertheless subsidiaries.
To compensate for the high default rate resulting from their positioning, the specialized institutions in 2007 had higher average interest rates (97% of revolving loans had an interest rate higher than 16% compared to 58% of loans of the same type). type granted by generalist banks 6 ). Now, they modulate this rate more strongly according to the risk presented by the borrower.
The main specialized institutions are (in order of size in 2006) 7 :
- Cetelem (subsidiary of BNP Paribas )
- Crédit Agricole Consumer Finance (Finaref – Sofinco, subsidiary of Crédit Agricole )
- Laser Cofinoga (main shareholder since July 2014: BNP Paribas , in direct competition with Cetelem)
- Cofidis (main shareholders 3 Swiss , Mutual Credit )
- Others: Financo (Crédit Mutuel Arkea), Franfinance ( Société Générale ), Natixis Financement ( Natixis ), GE Money Bank, Carrefour Banque (formerly S2P), CredeeZ, etc.
In France, according to the Household Credit Observatory, 30.1% of households have a consumer credit in 2010, a decrease of 1.6 points compared to 2009 8 .
Spending on consumer credit accounts for more than 7% of French GDP 9 .
A third of consumer credit is the acquisition of automotive, third in home equipment and the remaining third to other expenses 10 .
Men generally subscribe credit for cars, and women for household appliances and small purchases 11 .
The financiers distinguish four categories of population with regard to eligibility for credit, from the richest to the poorest: premiums , near premiums and subprime 12 .
Advantages and criticism
Consumer credit plays a major role in the functioning of modern economies by allowing individuals to acquire capital goods, but it can contribute to overindebtedness .
- For the borrower: it allows to buy consumer goods that can not be paid at one time.
- For the economy: by encouraging consumption , they support the growth of the national economy and therefore employment .
- Their cost: consumer loans are often granted at very high interest rates compared to market rates.
- The debt : consumer credit, often used by the lower classes, are one of the main elements leading to over-indebtedness. More precisely, according to the daily Les Échos , the “revolving credit (is) present in 86% of the files deposited before the commissions of overindebtedness at the end of June 2007” 7 .
- The Positive File or Credit Register : the idea of counting the appropriations of all French dates back to 2004. It has been the subject of proposals since 2010. There is already a file, the National Register of credit repayment incidents to individuals (FICP), which is a “negative” file, in the sense that it lists the payment incidents of individuals and not all current credits.
The census of all French, through their credits, was proposed in the Consumer Law adopted on March 13, 2014. This positive file was rejected by the Constitutional Council on March 13, 2014; the method was found to be disproportionate to the intended purpose, given the invasion of privacy it represents.
- The false advertising : for example, in advertisements broadcast in January 2006, the company Sofinco announced an effective interest rate ( APR ) of 16.58%, while the actual rate was over 20%. Sofinco was sentenced in November 2007 by the Criminal Court of Evry for this fact 7 .
Notes and references
- ↑ See text legifrance [ archive ]
- ↑ Cf. Law n o 2010-737 of 1 st July 2010 on the reform of consumer credit on the Légifrance website: http://www.legifrance.gouv.fr/affichTexte.do?cidTexte=JORFTEXT000022419094&categorieLien=id [ archive ] .
- ↑ Data sheet IOBSP: http://www.carriers-juridiques.com/actualites-et-conseils-emploi-juridique/courtier-en-credits/157 [ archive ]
- ↑ Laurent Denis, Banking Distribution Law: are you there? [ archive ] , Direct Droit, May 27, 2013
- ↑ The World, Interlibrary Loan particular, a practice that is spreading [ archive ]
- ↑ [PDF] CCSF Report 2007 [ archive ]
- ↑ a , b and c Les Echos , Wednesday, November 21, 2007, p. 39
- ↑ Observatory of loans to households, 24 th annual report of the Observatory of loans to households (2011) [ archive ]
- ↑ Pécourt 2010 , p. 11
- ↑ Pécourt 2010 , p. 13
- ↑ Pécourt 2010 , p. 19
- ↑ Pécourt 2010 , p. 44