Consumer Credit Protection Laws in the U.S. and in Germany
American consumers´indebtedness per capita is close to three times the German amount per capita. Predatory i. e. deceptive, abusive and unfair practices play a significantly more severe role in the U.S. than in Germany. The American law is designed to tackle social problems where they occur. As the old one, the new German Consumer Credit Law is by far less targeted and still lacks an effective enforcement. The German individual borrowing consumer in trouble is largely left alone. As a contrast, administrative enforcement and class actions are forceful weapons to protect and enforce the rights of the American consumer.
The presentation explains and compares briefly the different approaches to consumer credit protection in the U.S. on federal level, in California as a prominent single state, and in Germany.
The generically identical tool kit for consumer credit protection is employed very differently.
Having become more and more realistic over the last four decades, the American law-makers and the authorities in charge of consumer credit protection reduced consumer information in favour of substantial provisions and effective administrative activities to briefly inform, warn, protect and, if appropriate, effectively support the weakest and the most endangered ones amongst the borrowing consumers.
According to the EU´s guidelines, the borrowing European consumer may experience an information overkill, starting summer 2010 when the new law will become effective. From the frustrating experiences with the first version of the Truth in Lending Act (1968) the American law-makers have concluded in 1980 that increasing the number and complexity of information is less helpful than providing for targeted and sanctioning substantive consumer protections. Will it take the EU and Germany also another 12 years to cut the flood of information which will confuse too many European consumers who want or even need to borrow money? The upcoming information overflow may also be attributed to the EU´s aim to harmonize the EU financial market through standardized sets of consumer information.
Consumer Credit Protection Laws in the U.S. and in Germany
I) Consumer credit
II) Structure of legislative and administrative approaches to consumer credit protection
III) How credit products can be shaped by law (examples)
IV) Summary: U.S./California versus Germany (GE)
These exhibits are incomplete without the explanations given during their presentation. This presentation is designed to provide students of Business Administration with selective insights into contents, structures and legislative intents of certain international approaches to protect borrowing consumers with the instruments provided by law. As the present German Consumer Credit Protection Law is subject to major changes which were enacted in July 2009 and will become effective in June 2010, the focus is on the future German law.
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Sources: www.gesetze-im-internet.de/bgb
www.bundesgesetzblatt.de (Bürgerzugang, BGBl 2009 Teil 1 Nr. 49 pages 2355 - 2408)
U.S. federal law and regulations: www4.law.cornell.edu; www.findlaw.com; many others
California Law: www.leginfo.ca.gov
Pauluhn, Burkhardt, Verbraucherkreditrecht im internationalen Vergleich, Frankfurt/Main 2004
What is a consumer credit? (I) Simplified; for full definitions see statutes
1) Consumer
a) U.S.: Natural person(s) who borrow(s) primarily for personal, family or household
purposes (15 U.S.C. § 1602 (h)
b) Germany: Natural person(s) who borrow(s) for other than business or professional purposes
(§ 13 BGB = GE Civil Code)
2) Credit: Loan of money, credit sale (distinction more important in the U.S. than in GE)
a) Open-end credit: U.S.: In the credit contract, the creditor reasonably contemplates repeated transact-ions; finance charge is computed from time to time on the outstanding balance (15 U.S.C. § 1602 (i). Example: Revolving line of credit combined with a credit card.
GE: Line of credit. Overdraft facility with simplified attributes (old § 493 BGB)
What is a consumer credit? (II) Simplified; for full definitions see statutes
b) Closed-end credit Credit contract provides for payments which fully amortize the loan transaction (a demand clause is sufficient). Examples: Mortgage loan, auto loan, “small” loan.
Private Household Debt (Aug. 2009) (I)
Big business for lenders, potentially a significant financial burden to those who borrow…
U.S. (Federal Reserve)
Total: 14,287 bn USD, of which 11,819 bn USD residential mortgages (1-4 and multifamily res.)
Per capita: 46,538 USD + credit sales, others e. g. insurance loans
Germany (Deutsche Bundesbank):
Total: 1,015.2 bn €, of which 792 bn € housing/mortgaged loans (consumer lending)
Per capita: 12,350 € + credit sales, insurance loans
… with the potential to cause problems to those borrowers who
do not understand their obligations/risks, cannot afford their indebtedness
Private Household Debt (Aug. 2009) (II)
… who need protection from deceptive, abusive and unfair practices e. g.
suboptimal business (e. g. not the lender´s best available product)
threats to financial independency (e. g. A djustable R ates M ortgage s)
threat of loosing critical assets and of bankruptcy (e. g. reverse redlining, negative amortization as a teaser)
Consumer Credit Protection Laws in the U.S. and in Germany
I) Consumer credit
II) Structure of legislative and administrative approaches to consumer credit protection
III) How credit products can be shaped by law (examples )
IV) Summary: U.S./California versus Germany (GE)
Tool kit for powerful consumer credit protection
Addressees: Consumers + Lenders + Regulators
Admission of lenders: Who is entitled to be a creditor (lender of money) to consumers?
Disclosure: What information has a consumer to be furnished with, when and in which form?
Prohibitions: What terms and practices violate the law?
Contracts and legally
binding statements: Which form and content must contracts and associated statements have?
Supervision and
regulatory interventions: Is anyone out there to assist a consumer in trouble and to resolve her/his conflict?
Sanctions: What is a creditor´s “penalty” if violating consumer rights; what is the award/the compensation for the consumer whose rights have been violated?
Consumer Credit Protection: Structure of legislative approaches in detail (U.S.) (I)
Admission: Certain lenders of certain types of credit (i. e. loans of money) need a license.
Specific licenses may apply (subject to range of other products than credit offered, type of legal exemptions applied for e. g. sub-prime pricing, state vs. federal licenses etc.).
Even a “credit-only provider” needs to meet specific requirements (capital, reliability).
Consumer Credit Protection: Structure of legislative approaches in detail (U.S.) (IIa)
Disclosure: Public - Campaigns to prevent consumers from becoming a victim of predatory lending
- Publishing (e. g. www) regulatory findings and sanctions
Public/ - E. g.: A sanctioned lender must finance campaigns against predatory lending
private - If disclosing anything regarding credit offered, legal standards must be met (e. g.
Frequently Asked Questions
What is the main topic of the "Consumer Credit Protection Laws in the U.S. and in Germany" document?
The document provides an overview of consumer credit protection laws in the United States and Germany, comparing their structures, legislative approaches, and how laws shape credit products.
What are the main sections covered in the document?
The document covers consumer credit definitions, the structure of legislative and administrative approaches to consumer credit protection, examples of how credit products can be shaped by law, and a summary comparing the U.S./California to Germany.
What is the definition of a consumer in the context of credit, according to the document?
In the U.S., a consumer is defined as a natural person who borrows primarily for personal, family, or household purposes. In Germany, a consumer is defined as a natural person who borrows for other than business or professional purposes.
What is the difference between open-end and closed-end credit?
Open-end credit involves repeated transactions and finance charges computed on the outstanding balance (e.g., revolving credit lines). Closed-end credit provides for payments that fully amortize the loan (e.g., mortgage loans).
What are the statistics provided regarding private household debt in the U.S. and Germany?
In the U.S. (August 2009), total household debt was $14,287 billion, with $11,819 billion in residential mortgages. Per capita debt was $46,538. In Germany (August 2009), total household debt was €1,015.2 billion, with €792 billion in housing/mortgaged loans. Per capita debt was €12,350.
What are some potential issues that borrowers face, leading to the need for consumer credit protection?
Borrowers may face issues such as a lack of understanding of their obligations, inability to afford indebtedness, deceptive or unfair practices by lenders (e.g., suboptimal business, Adjustable Rate Mortgages), and the threat of losing critical assets or facing bankruptcy.
What are the key elements of a "tool kit" for consumer credit protection?
The tool kit includes admission standards for lenders, disclosure requirements, prohibitions against certain terms and practices, contract and legally binding statement requirements, supervision and regulatory interventions, and sanctions for violating consumer rights.
What is the role of disclosure in consumer credit protection?
Disclosure involves providing consumers with necessary information about credit terms and conditions, as well as public campaigns to prevent predatory lending and publishing regulatory findings and sanctions. It also covers requirements for advertising and mailing materials.
What is the significance of licensing for lenders in the U.S.?
Certain lenders of specific credit types require a license, with specific licenses applying based on the range of products offered, legal exemptions, and whether the license is at the state or federal level. Lenders must meet specific requirements such as capital and reliability.
- Arbeit zitieren
- Burkhardt Pauluhn, Dr. Dr. (Autor:in), 2010, Consumer credit protection laws in the U.S. and in Germany, München, GRIN Verlag, https://www.grin.com/document/147354
