The European branch of Caritas, the Catholic Church’s relief, development and social services arm, has denounced the problem of over-indebtedness in a new edition of its online newsletter.

Driving the news

“In Europe today, an increasing number of households face difficulties in paying their debts on time”, wrote new Caritas Europe Secretary General Maria Nyman in an editorial to the July newsletter.

“Over-indebtedness is a complex social and economic reality that affects persons – who are often already in situations of distress or poverty – seriously and deeply. This has a severe impact on their well-being, self-esteem and is a vicious, often life-long, cycle”, denounced Nyman.

The big picture

“In the European Union today, almost one in ten people are behind on their rent or mortgage, utility bills or hire purchase”, alerted Joost Korte, Director-General of the European Commission Directorate General of Employment, Social Affairs and Inclusion, adding that “when we consider single parent households with dependent children, the numbers are much higher – as many as one in five”.

The Dutch lawyer and academic recommended that to reduce indebtedness EU countries look into ways of increasing the incomes of poorer households, shoring up social services such as childcare and healthcare, imposing responsible lending practices on financial providers and improving economic and financial literacy among consumers.


One level deeper

“Caritas country reports from the Czech Republic, the UK and Austria show that a lack of financial literacy and an omission in public policies to mitigate indebtedness locks a number of young people into poverty”, wrote Shannon Pfohman, Policy and Advocacy Director at Caritas Europa, adding that “over-indebtedness excludes many people from the labour market as high deductions from wages leave a too low disposable income for living”.

“For people ending up in such a situation, undeclared work is often the only option”, the expert said.

“Preventing is better than curing, and structural changes are needed”, continued Pfohman.

“Informed by the reality of over-indebtedness as experienced by many families, Caritas challenges the unfair mechanisms underlying the problem”.

“We therefore advocate for changes to the execution of property procedures, for broader accessibility to debt relief, but also for increasing consumer protection in order to prevent lifelong debt traps, which might equally jeopardise the future of the victims’ children. Social justice is also an issue of fair debt managing measures and practices”.

What’s next

Olivier Jérusalmy, Senior Research and Advocacy Officer for the European NGO Finance Watch, recalled that “consumer credit and its over-use have been identified as key elements that contribute to the financial vulnerability of households in Europe”.

Jérusalmy called on the EU to incorporate into any future versions of the EU Consumer Credit Directive a number of “key areas and principles… to limit the negative impact of consumer credit use by European citizens”.

“The dangers of over-indebtedness emerge from market failures rooted in the asymmetry of power between creditors and debtors – especially when the debtor is vulnerable and/or poor”, denounced Jérusalmy, who is also a member of the European Commission Financial Services User Group (FSUG).

“EU consumer credit should be free of dangerous products”, Jérusalmy affirmed, calling on member states to put an end to “exploitative, unscrupulous or irresponsible lending practices”, the high cost of credit, and complex credit contract terms and conditions.

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