RESPONSIBLE LENDING and FINANCIAL EDUCATION
     
We need a basic level of confidence again. Money matters!

CRISIS, NEVER AGAIN! RESPONSIBLE LENDING AND FINANCIAL EDUCATION ON THE EUROPEAN AGENDA. ECRI Conference, Wednesday, 14th October 2009. Two years into the discussion of the causes of the financial crisis, it is evident that irresponsible lending practices on the one hand in combination with the lack of financial education on the other bear a fair share of the responsibility for stirring up the turmoil.

Dealing with only one but not the other would thus neither be just nor justifiable on the way to fixing what is broken and preventing the crisis from erupting again. Both are crucial for efficient market outcomes and need to be addressed jointly. Even the best lending practices will be ineffective if consumers are not capable to take informed borrowing decisions, in the same way that even the best-informed clients will not get far if lenders apply unfair business practices.

To this end, the European institutions have taken several recent actions to correct the existing deficiencies: amongst others, the Parliament has investigated financial education issues and adopted a report, the Commission has created an Expert Group on the same topic and public hearing on responsible lending took place on 3 September 2009 to evaluate the potential need for further regulatory action.

In the wake of these developments as well as in the context of a new European Parliament and a newly appointed Commission, stakeholders were invited to participate in this ECRI conference and to discuss with the assembled speakers the lessons learned, the future challenges faced and possible actions to be taken in the field of responsible lending and borrowing.

One of the main questions to be discussed is if regulatory action is feasible and necessary. What is the role of the industry in financial education? How effective are educational practices? Just how much and what information do consumers need? These and other questions will be addressed on 14 October 2009, at a half-day conference and co-sponsored by Intrum Justitia.

AGENDA

Introductory remarks Karel Lannoo, CEO, Centre for European Policy Studies.

KEYNOTE SPEECH: Urban Karlström, Secretary of State for Financial Market Affairs, Sweden.

ACHIEVEMENTS AND CHALLENGES OF FINANCIAL EDUCATION: Bruno Lévesque, Principal Administrator, Directorate for Financial and Enterprise Affairs, OECD, Mick McAteer, Director, Financial Inclusion Centre, UK, and member of FIN-USE.

Discussion

ENHANCING FINANCIAL EDUCATION AND ASSURING RESPONSIBLE LENDING: Panel Discussion, chaired by David Shirreff, The Economist, London, Noel Cramer, Director, Consumer Lending (Europe, Middle East and Africa), Citi, Eric Ducoulombier, Deputy Head of Unit (Retail issues, consumer policy and payment systems) DG Internal Market and Services, European Commission, Beat Koch, Regional Director, Customer Marketing (Germany, Austria and Switzerland), Intrum Justitia, Mick McAteer, Director, Financial Inclusion Centre, UK, and member of FIN-USE, Dirk Staudenmayer, Head of Unit (Financial services and redress), DG Health and Consumers, European Commission. Arlene McCarthy, Member of the European Parliament, Committee on Economic and Monetary Affairs.

ECRI stands for understanding credit markets for Europe. Over 100 participants out of a wide variety of companies were present to discuss or the subjects responsible lending and financial education should be addressed and how.

Referring to the results of a survey conducted within the framework of the International Network on Financial Education (INFE) in 2009, Bruno Lévesque from the OECD explained that the crisis’ dire consequences have raised awareness of the need for increased financial literacy and capability, now considered as one of the pillars of financial stability and an essential life-skill for households.

´GOOD PRACTICES´

´UNDERSTAND the CONSEQUENCES of BAD CREDIT CHOICES´

Lévesque called for the integration of financial education into school curricula and announced the potential inclusion of a financial literacy component in the mathematical section of the Programme for International Student Assessment (PISA) test in 2012.

“Financial education can only be effective in a completely transparent market environment”, Mick McAteer explained, calling on the responsible authorities to “clean up and simplify the market and lending behaviours”. Under current circumstances, he added, financial education schemes have no effect on consumer behaviour and are supported by financial institutions in order to avoid regulation.
Industry representatives in the meantime call for a more sector-specific approach, urging that policy analysis and any resulting legal framework should differentiate between various types of financial services products. “A consumer loan is not an investment”, Citi’s Noel Cramer stated.

Whether sector-specific or holistic: with the effectiveness of financial education challenged and the causes of the crisis partly found in regulatory shortcomings, national and European policy-makers are setting the stage for further legislative action in the area of retail financial services.
A complete summary of the conference, the programme and the speakers’ biographies can be downloaded at:
www.ecri.eu

The Department of the Treasury
In March ECMI discussed already 'PROSPECTS for EUROPEAN WHOLESALE BANKING' including the idea to introduce a Europe wide program for financial education, as tool to rebuilt trust in financial markets. It was an important event: blame is the name of the game. Banks, central banks, governments and financial supervisors. It all started by the subprime bubble in the US. In the mean time unemployment raised in spite of stimulated demand by governments. There was also a lack of transparency. Supervision needs to be improved in order to protect.
Attention for the present bad situation is also a top priority of the Commission. Financial education helps to stimulate lenders and borrowers awareness and that creates more benefit for all of us till the level of consumers finance on local issues. Consumers protection and financial institutions have to work hand in hand.

The awareness of the importance of financial education is gaining momentum among policy makers in economies the world over. The OECD and its International Network on Financial Education (INFE) provide a unique policy forum for governments to exchange views and experiences on this issue. The OECD sees in the context of the crisis challenges in the years that come: better programm assessment, comparable measures of financial literacy, ...). Also they covered the role of stakeholders, achieved special considerations for mortage issues and made recommendations on M&E. Education is important, but we have also day to day processes. Mentioned were also the more and more complex products and pointed was the cost effective. It is not only the product on itself, but also the organisation of the administration around it. Look to the use of a creditcard. Mortage is not possible and the limit takes care of the lending stop.