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Regulatory framework to tackle household financial distress Catarina Frade (FEUC & CES) BEHAVE International Conf

Regulatory framework to tackle household financial distress Catarina Frade (FEUC & CES) BEHAVE International Conference Households in the Financial Crisis: Consumer credit and policy Lisbon, January 17, 2014. Policy and regulation crossroads.

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Regulatory framework to tackle household financial distress Catarina Frade (FEUC & CES) BEHAVE International Conf

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  1. Regulatory framework to tackle household financial distress Catarina Frade (FEUC & CES) BEHAVE International Conference Households in the Financial Crisis: Consumer credit and policy Lisbon, January 17, 2014

  2. Policyandregulationcrossroads

  3. ContractLawPrinciples /Legal and Judicial culture Relevantcontractlawprinciplesandduties: Thepactasuntservandaprinciple(contracts are to behonored) as the legal groundofthecapitalisteconomycertitude, stabilityandconfidance Goodfaithprinciplein negotiationsandcontractfulfilment(to act with fairness, honesty and consideration for the other contractual partner interests) Information duties (disclosure) prescribed to lenders/sellers aiming to support borrowers/buyers decisions Conditionsfavorable to tradeand long-time commitments

  4. ContractLawPrinciples /Legal and Judicial culture • Consumerlawandtherecognitionoftheinequalitybetween financial institutionsandindividuals (consumers). • General informationduties (disclosure) in consumerprotectionlaw • Reinforcementofinformationdutiesconcerning financial products (v.g.consumercreditlaw; mortgagelaw, ECB andBankof Portugal orders, etc.) • Approach to therebus sic stantibustheory (changeofthecircumnstancestheory) (v.g. art. 6º, V oftheBrazilianConsumerCode) Rebalance of the bargaining power of contractual partners

  5. ContractLawPrinciples /Legal and Judicial culture • Legal and judicial culture(civil law countries like Portugal) • Positivismand rule oflaw • Adversarialspiritanddistrust in ADR mechanisms to solve conflits (negotiation, mediation, arbitration, etc.) • Neglectofconsumerlaw rules in favor of general contractlawnormsandprinciples • Judicial activismregarded with suspicion and criticism Standardized/routinizedlawenforcement

  6. ContractLawPrinciples /Legal and Judicial culture Current legal frameworkand judicial practice favor: an uneven distribution of credit risk, adverse to borrowers; unbalancedsolutionsthatmanynotprovide a satisfactoryprotectionofborrowers’ rightsandinterestsand in themid-termalsoofthosepertaining to lenders.

  7. Theperceptionofreality • What do wesee? • Retreatofpublicprovisionofwelfare(housing, education, health, retirement) • Increasedependenceofmarket, including financial market, for theprovisionofhouseholds´well-being (“financialization” ofsociety) • Increasevulnerabilityofhouseholds to thedynamics/crisisof labor marketandotherlifeevents (micro-level) and to economicand financial downturns (macro-level)

  8. Theperceptionofreality • What do wesee? • Higher exposure to risk from financial institutions due to short term interests of shareholders, the globalization of financial products and practices, and the diversification of customer profiles • Vulnerability of democratic political institutions in monitoring and regulating autocratic economic institutions (a lender/borrower relationship is also common)

  9. Policyimplicationsandchallenges Theshift: Fromindividual responsability(contractlawandtortlaw, financial literacy) to more a collectiverisksharingapproach (independentdebtcouselling, debtadjustment regimes, bankruptcy, responsiblelending) Balancingpactasuntservanda(freedomofchoice, autonomyofwill) withretibus sic stantibus (changeofcircumstancies)? More doctrineandjurisprudencediscussionisneeded!

  10. Policyimplicationsandchallenges Theshift: From monolithic solutions (one size fits all) to multi-level and customized solutions ‘regulatory mix’ combined with co-operation and co-responsiveness of public institutions, market, society and individuals Centralizedregulation versus deregulation versus decentralizedregulation ? Discussiontowardsgovernanceandlegitimacyissues!

  11. Policyimplicationsandchallenges Theshift: Fromcristalized rules andprocedures to more adaptative policies, lawsandprocedures « deterranceandcompliance debate « judicial activism? Fundamental economicand social rights in a contextofpublicresources deficit? The reinvention and reaffirmation of fundamental rights towards human dignity and freedom (constitutional law)!

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