2024-01-07 15:38:37
“What to do with credit, if not risk it? »
The question posed by Jean-Paul Sartre in The Devil and the Good Lord in 1951 clearly illustrates the problem that drives each “homo consumericus” that we are, constrained by our purchasing power but also pushed by our desire to purchase and the strong temptations of the consumer society. The supply of goods and services, and of credits to finance them at all costs, is ever more abundant.
Debt is useful for financing expensive housing or equipment, as long as the balance between interest (or financial charges) and the “remainder to live on” is ensured and the information is precise for the borrower. Nevertheless, at each time, situations of over-indebtedness have constituted a major socio-economic issue. Firstly, at the individual level, the situation is often associated with a feeling of failure and shame which pushes some people not to talk about it to those around them, or even not even to seek help from public authorities.
At the collective level then, the fate reserved for the over-indebted over the ages is a useful indicator for understanding the relationship between men and the material and the weakest. In ancient times, any unscrupulous debtor became the slave of his creditor who held the right of life or death over him. In the Middle Ages, debt became synonymous with fault and sin and led to imprisonment and social downgrading. The contemporary era sees the distinction between business bankruptcy and personal bankruptcy clearly established, and one will certainly be surprised that, until 1989 and the so-called law “Newer”there was no organized method of treatment and protection of over-indebted people in France.
In 2023, in an inflationary context and while the after-effects of the health crisis are still being felt, the Banque de France recorded 8% more over-indebtedness files filed compared to 2022. This is also increasing initiatives to inform and prevent in this regard. After setting up a dedicated telephone number (34 14), it is currently deploying the “Aide-Budget” test system in 11 departments with energy suppliers and social landlords to identify vulnerable households from the first unpaid bills and direct them to one of the 500 “Budget Advice Points” in France. They provide confidential and personalized advice on household budget management.
The underlying philosophy but also the realities of what over-indebtedness is have nevertheless, even discreetly, radically evolved since 1989.
Originally, a law more favorable to lenders
The procedure may well be quite young, but the legislator has shown, in less than 35 years, a particular legal nervousness with no less than seven major reforms (1995, 1998, 2003, 2005, 2010, 2014, 2018). They can be explained in particular by the sharp increase in the number of filings for overindebtedness with the Banque de France until 2014 and by the high proportion of redeposits.
From 2014, the number of files submitted followed a particularly remarkable downward trend before the health crisis marked a first break. It was recently confirmed by a 6% increase in deposits over the first nine months of 2023. Looking forward to a lull on the inflation front for 2024 and a return to stable key interest rates , THE figure of 6% was described as “moderate” by the Bank of France, which seems logical when we know that in the space of two and a half years, food inflation has reached nearly 21%.
Beyond the economic aspect, legal developments in this area actually mark a profound change in philosophy in the understanding of the phenomenon of overindebtedness of individuals, which went relatively unnoticed in 2004, even though it experienced a certain success.
When they were established in 1989, the main objective of the over-indebtedness commissions was to ensure that people in serious financial difficulties (and in good faith) could benefit from a period of time to pay their debts. They then aimed to allow lenders to recover all or part of their funds. The authorities therefore favored conciliation and goods called “conventional recovery plans” including recommendations, reorganization of debts and patience in order to find a solution which must necessarily lead to repayment of the funds lent without distinction of debts.
In a context of strong development of consumer credit, and therefore of over-indebtedness that is more active (or caused) than passive (or suffered), this orientation favoring the interest of lenders has not made it possible to contain the explosion of number of over-indebted people between 1995 and 2004. This is mainly explained by the length of the procedures, the lack of allocated resources and above all by a high rate of failure of the recovery plans concluded, despite the positive but too timid modifications made by the reforms of 1995 and 1998.
A reversal of priorities
It is then that the “Borloo law”, voted in August 2003 and applied from 2004, establishes the personal recovery procedure (PRP) also known as the “right to a second chance” for the most vulnerable. The change in approach draws its inspiration from the “civil bankruptcy” regime of local law in Alsace and Moselle. An alternative solution to conventional recovery plans is thus introduced for households whose situation is deemed “irremediably compromised”, that is to say without hope of improvement.
Jacques Witt/Wikimedia Commons, CC BY-SA
For the latter, it is possible to benefit from personal recovery in the form of total debt forgiveness. This is valid provided you are in good faith. This is presumed but can be called into question, for example, in the event of voluntary debt, recourse to new credits during the procedure, superfluous or lavish expenses or irresponsible management.
This legislative shift will take a few years to show up in the figures. Nearly twenty years after its implementation, it nevertheless appears clear that the PRP has established itself as a major solution to the distress of the most indebted households, to the detriment of recovery plans. It can be interpreted as a reversal of priority of the public authorities since this procedure implies the definitive impossibility for creditors to recover their investment. Their losses amount, for the 2022 financial year, to 1.3 billion euros in total, or less than 0.05% of GDP, for an average amount wiped out of 20,224 euros per household having benefited from a PRP.
The following reforms (2010, 2014) will strengthen and simplify the system to give it more flexibility and visibility while limiting and abuses relating to the practices of sulfurous renewable credits.
Increasingly passive debt
Started in 2014, the decline in the number of over-indebtedness cases is explained by the renewal of the legislative process which pushes for greater collective management of the most compromised situations, but also by a substantial modification of the balance between active debt and passive. Indeed, over the last fifteen years, we have observed an increase in the share of passively over-indebted households, accumulating everyday debts (rent, energy, communication, transport, insurance, health, education, food, taxation) , often following life accidents (accident, death of a loved one, separation, job loss).
Also, most (56%) of people filing an overindebtedness case are people living alone. 55% are women aged between 18 and 54. 25% are unemployed. The median standard of living of households having benefited from a PRP is 859 euros. As such, it is feared that the recent health crisis could still manifest itself in the statistics in 2024, particularly in a context of an end to public aid for the poorest households (tariff shield, energy check, fuel bonus), but also due to inflation which eats into accumulated savings and a unemployment rising again.
The initiatives deployed by the Banque de France should be encouraged and made accessible to everyone, everywhere, to stop the spiral of household over-indebtedness. The associative sector is also an important relay for reaching all audiences. Indeed, personal financial education and the dissemination of information on procedures that are increasingly favorable to debtors are important vectors for limiting dangerous behavior, effectively guiding the people concerned but also putting an end to the feeling of shame linked to phenomenon of over-indebtedness.
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