Principles of Responsible Credit
The Principles of Responsible Credit were formulated by the European Coalition for Responsible Credit, a networking and policy influencing association of consumer agencies, academics, and other non governmental organisations formally created in 2006.
It is not related per se to the Islamic finance industry.
Goals of the Coalition:
- Further the idea of responsibility in credit and banking and promote a set of principles for responsible credit and fair lending.
- Organise and maintain a continuing dialogue among consumer and money advice organisations, social welfare organisations and trade unions, alternative financial institutions and other NGOs.
- Influence bank thinking, strategies, products and services to benefit underserved and excluded groups.
- Promote the production of research and transparency.
- Organise conferences and other forums that increase people’s and NGO understandings and abilities to promote fair access to lending products and services.
- Act as a collective voice for underserved people to the public with respect to financial services.
P1: Responsible and affordable credit must be provided for all.
- 1. Credit is an essential for full participation in society.
- 2. Banks should not discriminate and should provide real access.
- 3. Credit to Consumers and Small Businesses must be supervised.
P2: Credit relations have to be transparent and understandable.
- 1. Competitive transparency requires a standardized mathematically correct form of “one-price” disclosure (the Annual Percentage Rate of Charge or APRC).
- 2. Social transparency requires a standardized pre-contractual payment plan.
- 3. Consumers should be provided with adequate time for reflection and with access to independent advice.
- 4. Consumers should have access to independent financial, credit and debt advice.
- 5. Both parties in the credit markets have to take part in a mutually productive process of financial education.
P3: Lending has at all times to be cautious, responsible and fair.
- 1. Credit and its servicing must be productive for the borrower.
- 2. Responsible lending requires the provision of all necessary information and advice to consumers and liability for missing and incorrect information.
- 3. No lender should be allowed to exploit the weakness, need or naivety of borrowers.
- 4. Early repayment, without penalty, must be possible.
- 5. The conditions under which consumers can refinance or reschedule their debt should be regulated.
P4: Adaptation should be preferred to credit cancellation and destruction.
- 1. There is a need for effective protection against unfair credit cancellation.
- 2. Default charges should be adequate to cover losses only.
P5: Protective legislation has to be effective.
- 1. Credit regulation has to cover all non-commercial users.
- 2. Credit regulation has to cover all commercial forms of credit provision.
- 3. Credit regulation has to cover the whole process of credit extension as experienced by its users.
- 4. Credit regulation has to encourage efficient social and economic effects of credit extension.
P6: Overindebtedness should be a public concern.
- 1. Profit-driven systems cannot cope with over-indebtedness.
- 2. Consumers should have a right to discharge.
- 3. Bankruptcy procedures should lead to rehabilitation and not to retorsion.
P7: Borrowers must have adequate means to defend their rights and be free to voice their concerns.
- 1. There should be adequate individual as well as collective legal procedures to enforce borrowers’ rights.
- 2. Critical public awareness is crucial for the development a fair and responsible distribution of credit.