DG FISMA published a report on national responses to the financial crisis

Our readers may be interested in the recently published report by DG Financial Stability, Financial Services and Capital Markets Union (FISMA) titled: Coping with the international financial crisis at the national level in a European context Impact and financial sector policy responses in 2008 – 2015

The comprehensive report is about national responses to the financial crisis. It focuses on those Member States that encountered the most reforms following the crisis: Hungary, Latvia, Romania, Greece, Ireland, Portugal, Spain, and Cyprus. The further  twelve Member States at least once received a country specific recommendation for their financial sector: Belgium, Bulgaria, Denmark, Germany, Croatia, Italy, Malta, the Netherlands, Austria, Slovenia, Sweden and the United Kingdom. The rest of the Member States, Czech Republic, Estonia, France, Lithuania, Luxembourg, Poland, Slovakia, and Finland are outside the scope of the report, and are only used for comparative purposes.

Although the report primarily tackles the macro aspects of the post-crisis changes, it provides valuable insights into the reforms designed to protect consumers such as measures responding to foreign currency lending in affected Member States, and national initiatives in reforming personal insolvency laws. It is therefore an interesting read for everyone interested in EU financial consumer protection and financial consumer law.

EU Commission announces measures for completing the Banking Union

As announced by President Juncker in his State of the Union Address the EU Commission issued a Communication on the measures it will take for the completion of the banking union. The banking union is seen by the Commission as essential for the good functioning of the Economic and Monetary Union (EMU) and its ambitious goal is for the banking union to be completed by 2019. For that purpose, a range of initiatives were announced. This post will focus on the two developments which are more relevant for consumer law which are: the measures on the European Deposit Insurance Scheme (EDIS) and on reducing the level of non-performing loans (NPLs). 

EDIS is a key component for the Banking Union as it will ensure that all depositors in the EU enjoy the same level of protection and the banking system will be more resilient against future crises. Unfortunately, though the Proposal for EDIS was brought in November 2015, the negotiations between the EU Parliament and the Council have been brought to a halt as there is limited political consensus. In order to address the concerns voiced during the negotiations, the EU Commission suggests that EDIS will be introduced more gradually, taking into account the progress made on risk reduction. In the first re-insurance phase, EDIS would provide only liquidity coverage and no loss coverage. Also, the move to the second phase of co-insurance would not be automatic but only when certain conditions, such as the level of Non-Performing Loans, would be satisfied. Furthermore, measures would be taken to enhance cooperation between national deposit guarantee schemes, national authorities, the Single Resolution Board and the European Banking Authority. The Commission is keen to achieve progress in negotiations aiming to adopt the proposal in 2018.

As for Non-Performing Loans (NPLs), while their level has fallen, they continue to present an important systemic risk and the EU Commission takes a holistic approach in tackling the problem of existing NPLs as well as taking steps to ensure they do not build up again in the future. Part of that is regulating Asset Management Companies, developing secondary markets for NPLs and enhancing the protection of secured creditors. Another measure that might prove interesting also for legal scientists is that of increased transparency on NPLs in Europe as more data will be available and comparable, making it possible to examine the NPLs market in different jurisdictions and on an EU level.

The completion of the Banking Union would be a positive development also for EU consumers and hopefully serve to avoid a repetition of the recent financial crisis. Do you think the new measures announced are a step in the right direction? Please share your view in the comments.

Yale-Humboldt Consumer Law Lecture

Last Friday one of the authors of the blog attended the first Yale-Humboldt Consumer Law Lecture. The lecture aims at encouraging the exchange between U.S. and European lawyers in the field of consumer law and is organised by Professor Susanne Augenhofer from Humboldt University in Berliln. For the first lecture she invited three distinguished professors from Yale Law School: Alan Schwartz, Roberta Romano and Daniel Markovits. 

In his presentation on 'Regulating for Rationality' Alan Schwartz argued that even though experimental results in psychology and behavioral economics have shown that consumers do not always act as the model of homo oeconomicus would suggest, regulators should retain the rationality premise. As long as there is no general psychological theory on how laboratory results are likely to translate into market results, regulators should stick with disclosure regulation.

Roberta Romano gave a lecture on 'The Consumer Financial Protection Bureau (CFPB) and the Iron Law of Financial Regulation'. She showed that the CFPB was created in the midst of a financial crises and pointed at the risks of such crisis-driven legislation. She suggested to sunset legislation, so that all provisions must be reviewed and reenacted after a fixed time period. Furthermore, she encouraged small scale experimentation and flexibility in implementation. 

Daniel Markowits ('Sharing Ex Ante and Sharing Ex Post') argued that understanding fiduciary law requires a model besides contract. He showed that the core duties of the two relations differ. In contract law it is good faith, in fiduciary law it is fidelity or loyalty and care. Another difference is that contract partners share ex ante while fiduciaries share ex post.

Another interesting event will take place in Berlin on October 20th. Oren Bar-Gill (NYU, Harvard) will be talking about 'The Future of Consumer Law'. Looking forward to that!

What unfair terms control cannot do: CJEU in Barclays (C-280/13)

While last week we endeavoured to give our readers a timely and informative account of Kásler, which might become a very relevant case in the subject of unfair terms control, on the same day the CJEU also delivered another decision in the field, Barclays Bank SA v Sara Sánchez García, C-280/13.

This case, rather than producing knowledge on the working of unfair terms control under Directive 93/13, reminds us of the limits beyond which the Directive cannot reach. It also shows how, after cases such as Aziz, Spanish courts have tried to use the Directive as a means to address social issues to which national legislation doesn't seem to give an (equitable) answer.

In Barclays, Ms Sánchez and her husband concluded a secured loan- using as security the house they lived in. When they stopped paying the due installments, they ended up with their house being acquired by the bank and a remaining outstanding debt of over 100 000 euros (out of the 153 000 they had borrowed).  

This was made possible by a combination of Spanish legal provisions (allowing inter alia, the vesting of property by the creditor for half of its value were the property auctioned in vain) and a contractual term in favour of the bank, which again was explicitly authorised by Spanish law.

Of such provisions, under which it was impossible to consider Barclay's behaviour as an abuse of rights, the Juzgado de primera instancia of Palma de Mallorca asked the Court of Justice whether they, or their effects, were contrary to the Directive and "the principles of EU law concerning consumer protection".

But "statutory and regulatory provisions" of national law are explicitly excluded from the Directive's scope (see art 1(2) thereof). The Court (para 41) recalls that, as concerns such provisions, "it may legitimately be supposed that the national legislature struck a balance between all the rights and obligations of the parties to certain contracts".

The fact that the Directive, by excluding them from its scope, regulates the "position" of national contractual rules also puts them beyond the reach of general principles (of EU consumer law? para 44), following the prevalence of lex specialis.

In other words, EU law and the CJEU can be of no help to ms Sánchez and other Spanish consumers in a position similar to hers and her husband's.