Loans: many in Italy but still low interest rates

Currently almost 40% of the Italian population has at least active funding. We speak for the accuracy of 39.4% according to the analyzes conducted by CRIF, a company specialized in credit information systems. The data refer to the first six months of 2019, and mark an increase of 8% compared to the same period of the previous year. The number of Italians applying for a loan therefore increases, yet the average installment that is paid decreases, which is now $ 344 (a drop of 1.5% compared to the first 6 months of 2018).

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The reason for the large demand for loans from Italians

The reason for the large demand for loans from Italians

It is probably the interest rate which continues to remain reasonable. Many therefore decided to take the plunge and launch, for example, in the purchase of real estate, cars, motorcycles or consumer electronics.

Beatrice Rubini, director of the CRIF Mister Credit line, believes that the decrease in the average installment and residual exposure are evidence of a certain sustainability of consumer debt. In short, there are ideal situations to take advantage of the loans and get some thoughts out of your head. Several people who use the same tool are testimony to a mechanism that works and is capable of satisfying consumers.


Loan options

Loan options

It seems that the targeted loans are the ones that are the most popular, representing 45.5% of the total. The loans aimed, we remind you, are those intended for the purchase of a particular good or service, such as a car, a motorcycle, household appliances, consumer electronics, furnishings or travel.
Then there are personal loans, those that do not require a specific purpose, and which represent almost 33% of the total. Tuscany is the region with the highest percentage of citizens having at least active funding, with a significant 44.2% of the population. Follow Sardinia, Friuli-Venezia Giulia, Lazio and Valle D’Aosta. The tail of Trentino Alto Adige, where only 20.2% of the population has applied for loans and finds itself with active financing.
Finally, the mortgages for the purchase of real estate, with 21.7% of the cake, close the ranking.

The irresponsible loan returns, but now for consumption

The serious economic and political consequences of this crisis have not served for the legislator to adopt effective measures to avoid what constitutes one of its most relevant causes: the high-risk loan and the over-indebtedness of individuals, which, in turn, favors the increase in public debt and the consequent restrictions on the welfare state.

It is not that “banks are bad” it is that regulation is bad. A regulation that continues to be inefficient and generating perverse incentives for credit market operators.

Prevent financial crises


Failure to take effective measures to prevent financial crises is very serious. History has taught us that wars and totalitarian regimes have arisen precisely after a powerful economic crisis. And this seems logical. When citizens have “nothing in their pocket”, they have “nothing to lose”, populist messages penetrate with greater intensity. And this is what is happening to us here. Populism is at home …

The facts prove this claim. As it happened in the years before the crisis, again, the Capital Lender begins to alert but is now focused on consumer credit, highlighting the extraordinary growth that consumer credit is having in Spain. Something that the Fine Bank has already denounced in a report where it highlights that ” consumer credit is registering double-digit growth rates in Spain “.

In fact, the European Commission is already evaluating the impact of the Consumer Credit Directive with the aim of evaluating future reforms in this area. As with the Mortgage Credit Directive, the wide margin-left to the Member States is testing its real effectiveness. The mortgage loan will be evaluated before March 2019, as stated in its article 44, probably before its transposition has been approved in Spain….

Spain is a manifestation of “light regulation” of responsible lending, which was one of the directive’s objectives. The most serious thing is that the Capital Lender itself recognizes its powerlessness to veto credit growth. It says so, even though it can decree the increase in bank provisions. Of course, there is no helplessness to rescue poorly supervised financial institutions with public money.

The possibility of increasing provisions or the eventual imposition of administrative sanctions has not been sufficient measures to stop a scandalous increase in consumer credit, which has shot up 40% in just three years and also delinquencies that amount to 8.6%.

As reflected in the GFI report, Spain is the EU country where consumer credit is growing the most. That the Good Finance is in negative rates may have something to do with this increase, since this type of loan allows financial institutions to set higher interest rates. In fact, in Spain, the interest rate in consumer credit contracts is 60% higher than in the EU.

We have more consumer credit, more delinquencies and the highest interest rates in the EU. All this together with a significant decrease in the household savings rate that is only 4% of their disposable income.

What does this data show?



That financial institutions still do not have sufficient incentives to grant loans in a responsible manner. The first regulatory failure is that the Consumer Credit Law (LCC) establishes only administrative sanctions in the event that irresponsible loans are granted, that is, granted to people without sufficient repayment capacity.

The contracts concluded in these circumstances are fully valid and the consumer will be obliged to fulfill them. What incentive does a consumer have to report an irresponsible loan if, if their claim is estimated, it has no effect on the contract concluded with the financial institution?

In other legal systems, the irresponsible loan has contractual consequences and is enforceable by way of exception to the creditor when it claims compliance with the debtor. The judge may deprive him of the remuneration and default interest if he considers that the debtor was not solvent at the time the loan was granted.

Obviously, these effects do not occur when insolvency is the consequence of supervening circumstances of the debtor (unemployment, illness …). No liability can be attributed to the entity when the insolvency is the result of the “bad luck” of the debtor. In this case, we have the possibility that the debtor is exonerated from the liability in a bankruptcy procedure through the second chance regime. What is clear – and the facts prove it – that the administrative sanction of the irresponsible loan is inefficient.

But for an adequate responsible loan regime to be designed with contractual effects, it is necessary for the judge to be able to assess the data that the entity has handled when granting it. And, above all, financial institutions must have access to reliable solvency data. Otherwise, they will always hide behind this lack of information to exonerate themselves from responsibility, transferring it to the consumer who is the “owner” of their data.

And at this point is where the second major regulatory failure is evident: the deficit credit information system, that is, the one that determines the access and flow of wealth solvency data and whose objective is to discipline the credit market: preventing Consumers overindebted, compromising the solvency of financial institutions as a result of high delinquencies.

This key issue is poorly regulated in Spain. As much as the entities have an obligation to consult the Good Finance Investment Corporation (GFIC), it will only inform them of operations whose accumulated risk exceeds 9,000 euros.

Therefore, if I, for example, only have a revolving credit card with a limit of 3,000 euros, this data cannot be known by the entities when it comes to lending. If they go to the private credit bureaus, they will find negative information, that is, they will only know if the client is delinquent or not, but not what are the debts he has assumed and has not yet defaulted on.

In Spain there is a lot of asymmetric information in the credit market due to the fact that financial institutions do not share positive information (debts assumed and not yet fulfilled), something that I have already repeatedly denounced in this blog here, here and here. Forcing financial institutions to consult databases with incomplete information is really absurd.

What are the consequences of the lack of reliable solvency data? When the lender cannot distinguish between good and bad payers due to a lack of reliable solvency data, he has two options: either he increases the denials, or he grants the loans increasing the credit cost to all the applicants so that the good payers bear the costs. the default of bad payers.

It is clear that in Spain the second is happening: credit for everyone and more expensive for everyone. And, above all, much more expensive than in the rest of the EU

Have we done anything to improve this regulation?



Well, PP-PSOE has rejoined to block the implementation in Spain of regulation of positive files, rejecting an amendment presented in Congress (nº 80) by the Parliamentary Group of Citizens that did regulate them in the framework of the recently approved in Congress Draft Organic Law on Protection of Personal Data and Guarantee of Digital Rights.

The amendment to art. 20 which refers to the credit information system has also been presented in the Senate by the Mixed Group (amendment 1). The legitimate interest of the controller must be presumed not only to share negative but also positive data. The approved regulation continues to refer only to negatives. Therefore, more of the same. Entities must be compelled to share positive solvency data.

As I have said, without positive solvency data it is not possible to design an efficient responsible loan legal regime with contractual effects. The problem could have been solved now, but it has not been done, thanks to the opposite position of the two majority parties.

But not only that, nor is the regulation of the obligation to assess solvency having an adequate response. The Real Estate Credit Law Project is still in the process where this obligation must be regulated. As expected, the same rulings are also reproduced as in the LCC: non-compliance is subject to an administrative sanction.

However, it seems that something can change since the Socialist Party (nº 98), Podemos (nº 29) and Ciudadanos (nº 186) have presented amendments in Congress foreseeing the contractual effects for the breach of the duty to assess solvency or the granting of credit when the solvency test is negative.

Hopefully, this necessary change will be approved, but without an effective credit information system that allows entities to share positive data, such a contractual regime will not be very effective either due to the difficulty of verifying the degree of compliance with the obligation to assess solvency, given the absence of reliable data flow.

The consumer cannot monopolize his solvency data by favoring asymmetric information in the credit market. The stability of the financial system is at stake and this will open the door to new financial crises, with the consequent political consequences.

The regulation of the solvency assessment must be the same in both consumer loans and mortgages. Only Citizens has proposed an amendment (nº 186) in such a sense that, given the background, it will most likely be rejected by the other parliamentary groups.

This should be known because the perverse bankers will not be guilty of the next crisis, but, again, a bad and also perverse regulation. Let them not say that we have not warned …