Changing Directions in Consumer Bankruptcy Law and Practice in Europe and USA

The consumer bankruptcy or, rather, consumer debt adjustment, is a fairly recent phenomenon in continental Europe. In the nineties, a number of European countries introduced judicial institutions in order to alleviate an excessive debt burden carried by consumer debtors. In addition to the court proceedings, the European jurisdictions often provide the debtor with debt counselling services, supervision, and payment requirements. In the United States, on the other hand, discharge of debt has been an established principle of bankruptcy law since the late 19th century, and bankruptcy is frequently used by consumer debtors. However, in the US, as well as in Canada, debtors are increasingly encouraged to opt for a payment plan. There seems to be a certain convergent trend between the two different legal cultures. Paradoxically, at the same time scholars have pointed out that the variance in local cultures seems to be a main factor in explanations of how debtors choose either a direct discharge or a payment plan. This finding gives us reason to consider the interplay of counselling and other pre-trial measures and its effect upon the rights and duties of debtors.     

The Way into Bankruptcy: Market Anomie and Sacrifice Among Portuguese Consumers

Portugal ranks among the EU27 countries with higher levels of consumer indebtedness. Contrary to the trend observed in countries with similar indebtedness rates, Portugal has one of the lowest rates of consumer default. Previous studies (e.g., Frade et al. 2006) have identified three strategies that have contributed to keep levels of credit default low: reliance on savings, financial support from relatives and friends, and cuts in household expenses. These strategies have been widely used for the last decade and have been strained since the very beginning of the global financial crisis in 2007. We argue that these three strategies are near to collapse and consequently the levels of consumer default will rise steeply in the next years. The savings rate in Portugal has been declining over time, and the social networks are limited in their action due to the current crisis that affects everyone. In this article, we advance the hypothesis that sacrificing living standards is rooted on collective beliefs about the current economic crisis in Portugal and trust in political and market agents in line with the Theory of Market Anomie (Karstedt and Farrall 2006). The conclusions are based on macroeconomic statistics and on the results of a Web survey of 1244 Portuguese households, which focuses on attitudes towards the financial crisis, trust in political and economic institutions, and strategies to cope with the crisis. The results show that trust in financial companies (banks and insurance companies) and in the European Parliament promotes a sense of empowerment to contribute to the country economic restoration. This attitude induces citizens to avoid default by sacrificing living standards. But in the current austerity context, with low levels of trust in political institutions and detachment of the economy, consumers will be less prone to sacrifice. In this scenario, credit default and insolvency is expected to rise especially in those households most exposed to unemployment and to cuts in social benefits. This reality puts a huge and growing pressure on bankruptcy procedure, civil courts, and economic and social policies. Some adjustments should be made to the Portuguese Bankruptcy Code by facilitating and simplifying the bankruptcy regime in order to accommodate the increase in insolvency cases. But the improvement of the insolvency procedure will not resolve the situation of financial distress if the structural causes persist, such as unemployment and deterioration of salaries, and cuts in social benefits. A reform of the Bankruptcy Code facilitating and simplifying the bankruptcy regime should be coupled with measures that boost the economy and stimulate the labour market. Otherwise, Portuguese households will not have the resources necessary to benefit from the bankruptcy process and regain the control over their financial lives.     

Consumer Insolvency in the European Legal Context

Consumer credit, as an important aspect of the free movement of capital, has for a long time now been subject to European Union regulations. However, one important aspect of consumer credit, over-indebtedness, has not been acknowledged in the Consumer Credit directives of 1978 and 2009, nor is there any other European Union law instrument that addresses over-indebtedness or insolvency of consumers. The only European-level document addressing the problem of over-indebtedness of ordinary people is the Council of Europe Recommendation of 2007. In European Union law, over-indebtedness can and should be approached from several angles. The Insolvency Regulation (2000) does not directly address situations facing the consumer debtor and leaves it up to the discretion of the Member States to include or exclude insolvency proceedings for consumer debtors regarding the scope of the Regulation. There can be little doubt that the European Union has a legal basis for action in this field, and it has also used its competence in a number of related issues, such as general insolvency law and enforcement of judgments. Case C-461/11, in which Advocate General delivered her opinion on Sept 13^th, 2012 shows that national insolvency procedures for natural persons may constitute a restriction on the freedom of movement. This article argues that, even in the absence of a European Union law instrument, the Member States should recognize debt adjustment judgments made in another Member State and that there is a need for a regulation in the European Union law in this field.     

Debt developments and fiscal adjustment in the EU

Since the financial crisis in 2008–09, concern over the sustainability of some EU countries’ sovereign debt has continued to mount higher and higher. This paper explores the ways in which the financial crisis caused the deterioration of European debt-to-GDP ratios, examines which countries are on sustainable debt paths and quantifies the fiscal adjustment required per country for debt sustainability.     

Adult consumer education across Europe – redressing the market or reaching the vulnerable consumer

Consumer education is an important EU and United Nations priority. In most countries’ formal education systems, it is not a single discipline in its own right, but a cross‐curricular subject involving many areas of the school curriculum. Adult consumers are expected to be critical and informed consumers but may not know how to acquire the appropriate skills. The formal school system in many countries has failed to deliver these skills and values and adults need consumer education through both formal and informal means. With increasingly varied societies consumer education will help to produce active socially responsible citizens and citizenship is an essential element of the delivery of consumer education to adults. It is particularly important that consumer education should reach the vulnerable groups in society. Increasing globalisation and business power necessitate ethical and sustainable business practices; an informed, educated and empowered consumer will strengthen the market place to the benefit of both consumers and business. Unlike school education, adult education across Europe is fragmented with a mixture of formal education, including training for vocational qualifications, continuing and community education, and informal education, an essential contributor to life‐long learning delivered through media, women's groups, consumer groups and many other large and small organisations. The issues have been addressed by the EU Socrates supported CEA (Consumer Education for Adults) project which has 10 partners from 7 European countries drawn from non‐government organisations, teacher training and adult education institutions, universities and research institutes. The project has produced a training manual for adult consumer education, a training module, piloted in Vienna, which includes a handbook of teaching materials and a video, and has initiated a dialogue between consumers, consumer educators, business and producers.     

A Next Step in Debt Enforcement: the Merger of Debt Help and Debt Collection

Since the 1990s, each Member State of the European Union designed a policy that infused the liberal American fresh start policy into its own social institutions and legal culture. Especially in countries with a civil law tradition, the legal position of the consumer has improved. The paradigm of lifelong liability of debts has been replaced by a form of limited liability. Discharge of debts has established itself as a firm legal principle in all European jurisdictions. In most European countries, the new approach consists of a combination of legal and extrajudicial instruments. Under the umbrella of the courts, social workers, trustees, and administrators perform a broad range of activities in monitoring and helping debtors. The so-called new-chance approach has dramatically changed the playing field amongst debtors and creditors. The new legal equilibrium worked rather well in most European countries in the 1990s and 2000s. However, the systems are obviously far from perfect as almost all European governments are still fine-tuning their laws. Recently, two innovations have appeared on the European stage: Some Nordic countries have opted for a centralized state-controlled enforcement system, while in the UK, commercial debt management plans were developed, mainly by commercial suppliers. In 2005, the US Bankruptcy Code was changed in favour of the creditors. The 2008 credit crunch and its aftermath present a window of opportunity for the next step in the modernization of debt enforcement policy. I will suggest a merger of the fields of debt relief and debt collection, with a pivotal role for independent trustees.     

Making the Market Work: Enhancing Consumer Sovereignty Through the Telemarketing Sales Rule and the Distance Selling Directive

This article analyzes the provisions of the Telemarketing Sales Rule, which the Federal Trade Commission promulgated in 1995 pursuant to the 1994 Telemarketing and Consumer Fraud and Abuse Prevention Act. The author proposes a framework through which the Rule may be understood as embodying a regulatory strategy of controlling abusive telemarketing by enhancing the effectiveness of market forces. In particular, the Rule works by improving the quantity and quality of information flowing to consumers, preventing the occurrence of transactions that the consumer does not truly intend, preventing telemarketers from evading the effects of market forces governing availability of payment mechanisms, and enhancing the effectiveness of the contract regime.The article then applies the same framework to the 1997 Distance Selling Directive of the European Union, yielding several recommendations that EU member countries may find useful when transposing the Directive into national law. The author also discusses some of the special considerations that EU member countries should take account of when transposing the Directive's requirements in the context of electronic commerce.     

Western European integration and Eastern European transformation

The process of EU integration has intensified in the 1980s and early 1990s. The desire of a number of central and eastern European countries to join the EU is often seen as a threat to the continuation of this process. How wide should the radius of EU enlargement be? Which forms of integration would be appropriate between the EU and different subsets of ex-CMEA countries?     

Consumer Ethics in the European Union: A Comparison of Northern and Southern Views

There is a growing interest in understanding consumer ethical actions in relation to their dealings with firms. This paper examines whether there are differences between Northern and Southern European Union (EU) consumers' perceptions of ethical consumer behaviour using Muncy and Vitell's (1992) Consumer Ethics Scale (CES). The study samples 962 university students across four Northern EU countries (Germany, Denmark, Scotland, The Netherlands) and four Southern EU countries (Portugal, Spain, Italy, Greece). Some differences are identified between the two samples, which might question the ability of organisations to consider the EU as one homogeneous market.     

Adjustment constraints in developing countries

The debt crisis of the eighties has compelled many developing countries to catch up on a painful adjustment backlog. In addition to traditional stabilization measures sponsored by the IMF, many countries are now acquainted with the structural adjustment programmes of the World Bank. Some have implemented these programmes successfully, others have terminated them after a short period or only partially completed them. What are the reasons for this?     

Regime Market Performance Analysis: Informing European Consumer Policy

The Single Market of the European Union has progressed during recent decades to encompass more than 500 million consumers in 28 EU Member States and adjoining countries. During the same period, consumer issues have received growing policy interest and policy measures have been put in place to harmonize the Single Market, that is, to make national markets more alike. Yet, in order to provide policy measures that promote desirable market outcomes, the considerable challenge of understanding differences in the market performances of participating countries and the relationships between national markets and the Single Market need to be addressed. Consequently, this article proposes the consideration of differences in terms of regimes, that is, between groups of similar countries, when assessing the performances of markets. Differences in market performances are analysed with the Kruskal–Wallis test using survey data from the European Commission, and results were reviewed against market studies carried out by the Commission. Findings show that regime differences in market performance can indeed be observed and that the regime approach can draw policy attention to commonalities in market arrangements in addition to the consumer issues conventionally examined, such as price differences and consumer awareness.     

Das transatlantische Freihandelsabkommen — Relativierung von Chancen und Risiken

Since June 2013, negotiations have been underway between the U.S. and the EU on the Transatlantic Trade and Investment Partnership (TTIP). Proponents of the envisaged agreement predict significantly positive effects on growth and employment. Critics, however, fear a reduction of existing standards, such as consumer or environmental protections, or abuse of the scheduled Investor- State Dispute Settlement (ISDS). The often very contrary positions recall the hopes and fears associated with the establishment of the European Single Market in the early 1990s. Against the background of the realised growth and employment effects of the much wider EU single market project and the significantly lower economic ties between the EU and the U.S., both the expected growth momentum as well as the potential risks of the TTIP need to be qualified.     

The Phenomenon of “Consumer Insolvency Tourism” and its Challenges to European Legislation

Consumer insolvency tourism, i.e., the relocation of over-indebted natural persons into a Member State granting a more favourable discharge regime from personal debt than the home country, has been focused by media as well as by legal practitioners quite intensively lately. Conflicts arise not only in distinguishing genuine and fictional relocations of the centre of main interest (COMI), but also between the effect of discharge and creditor's perspectives who did not take into account the possibility of considerably more debtor-friendly discharge facilities abroad when issuing the credit. While relocating a corporate COMI to another Member State providing better restructuring conditions will generally benefit both creditor and debtor, the effect of discharge in consumer insolvency procedures leads to less balanced results. It is not controversial that the current practice is in accordance with the wording of the European Insolvency Regulation (EIR). However, little research has been done so far on the question whether the phenomenon itself has been endorsed by the EIR. Even if consumer insolvency tourism is generally not regarded as an abuse of the EIR or of European freedoms, it may still not respect the interests of both debtors and creditors appropriately. With regard to the prospective revision of the EIR, this paper proposes different approaches to balance the interests of debtors and creditors by normative means.     

Which firms do prefer Islamic debt? An analysis and evidence from global sukuk and bonds issuing firms

The Islamic debt instrument sukuk has been in the market for two decades; still, we do not know why a firm prefers an Islamic debt over conventional debt, set aside religiosity issue. We argue there is a genuine reason to choose Islamic debt because it has lighter indebtedness, benefits of avoiding external monitoring, and tax incentives. Based on the cross-country data for 346 firms issuing dollar-denominated global sukuk and bonds, we find that firms that prefer Islamic debt and issue sukuk are financially more unstable, and thus exposing to higher insolvency risk as compared to bond issuing firms.     

Debt Relief as a Last Resort for the Lender of Last Resort?

The coronavirus crisis has led to a sharp increase in the debt-to-GDP ratios of the euro area member states. Without external support, access to the capital market could be seriously threatened in the medium term for Italy, but also for other member states. While the Pandemic Emergency Purchase Programme, which is designed as a monetary policy instrument, is regarded by some as a violation of the prohibition of monetary financing, the Next Generation EU recovery fund is likely to direct the fundamental structures of the European Union towards a fiscal union with considerable redistribution elements. This article analyses an alternative strategy, namely debt relief by the European System of Central Banks through an EU debt agency. Such a scheme would be possible without amending the EU treaties and would avoid negative equity at the central banks. The question is under what circumstances would this approach be suitable and proportionate?

     

Institutions,Governance and Economic Growth in the EU: Is There a Role for the Lisbon Strategy?

While European economic integration and in particular the single European market often appear to be only a smallest common denominator in the EU, they condition the economic policy framework facing Member States and have been instrumental in putting governance patterns into motion. The Lisbon Agenda is a case in point. Motivated by competitiveness concerns, it outlines an economic and social strategy meant to relaunch the EU within the changed setting of world-wide competition and a knowledgebased economy. Its success ultimately hinges on whether the necessary coordination to implement policies with an EU rationale can be achieved so as to realise the efficiency properties of the internal market. *and Research Fellow at IEEI **and National Institute for Public Administration (INA). This paper stems from the authors' joint research and teaching on European Economics at the University of Victoria, Canada, at INA and at the University of Aveiro in 2005 and 2006 and is part of an FCT research project on Economic Growth, Convergence and Institutions (research grant POCI/EGE/55423/2004, partially funded by FEDER).     

EU preferential market access conditions for the least developed countries

The EU has opened up its market to duty and quota free imports from the least developed countries. This article outlines the key elements of this initiative and the factors determining its likely effects and argues that the EU must also liberalise and reform its prefernntial rules of origin if the initiative is to be effective in achieving its objectives.     

Italian consumer awareness of layer hens' welfare standards: a cluster analysis

Animal welfare has assumed in recent years an increasing significance for European consumers, becoming part of the Community Agricultural Policy strategy that encourages farmers to achieve higher standards of animal welfare. Undoubtedly, the superior social sensitivity towards animal welfare has produced over time notable changes within European Union (EU) Policy. However, while EU legislation has progressively focused on granting animals better possibilities to express their behavioural repertoire, recent analysis shows that consumer knowledge of animal welfare compulsory standards is still quite limited. Drawing on the results of a direct survey on 300 Italian food shoppers, our research analyses consumer knowledge of the welfare standards of laying hens. Our findings highlight important market opportunities and policy implications. Our research shows that, although the majority of the sample expressed concern on hen husbandry systems, most of respondents were unaware of the current mandatory labelling system for eggs. Through cluster analysis three segments were found: the inactive consumer cluster, the conflicted consumer cluster and the ethically competent consumer cluster. This segmentation is especially valuable for producers of ‘animal‐friendly’ eggs to identify market opportunities and formulate appropriate marketing strategies.     

New Audiovisual and Information Services and the Protection of Children: The European Dimension

This information paper outlines how the interests of minors are dealt with in the European Union's (EU) embryonic policies for new audiovisual and information services, in the context of what has happened – and is currently happening – in broadcasting and telecommunications. It is written from the public interest and consumer perspective rather than that of the industries involved, with a particular concern that the major contribution that new, technology-based services can make to the mental and moral development of children should not be prejudiced by harmful and damaging content. The author also addresses the virtually complete neglect of the need to protect children from economic exploitation through the new technologies.In general, the momentum of EU policy to ensure free movement of services, combined with the practical problems of developing an effective international regulatory structure for the new trans-border technologies, suggests that there will be considerable technological and commercial pressures to relax existing provisions which aim to protect minors, while there will be major obstacles in the way of developing new legislative or regulatory measures. This is a pessimistic scenario for those concerned with the interests of children. Nevertheless, there are some opportunities, which are outlined in the final section of the paper.     

Lässt sich der deutsche Leistungsbilanzüberschuss mit vertretbarem Aufwand reduzieren?

Can an expansive fiscal policy help to reduce Germany’s current account surplus while simultaneously creating positive spillover effects for the eurozone? If yes, what amount of measures would be required in order to bring the current account surplus below the 6% of GDP threshold specified in the EU Commission’s macroeconomic imbalance procedure? An analysis based on a global macroeconometric model shows that fiscal policy measures could reduce Germany’s surplus. The positive spillovers for the eurozone would be relatively small, however, while a huge amount of fiscal stimuli would be required to reach the 6% threshold. In addition, there would be a lasting increase in Germany’s public debt.