Monday

15th Oct 2018

Opinion

10 years after Lehman Brothers what has changed for EU consumers?

  • The Royal Bank of Scotland was one of many banks to receive a government bailout at the height of the financial crisis in 2008 - now banks are accused of piling up consumer credit (Photo: duncan)

Ten years already. Ten years ago Lehman Brothers filed for bankruptcy, the event which sent stock markets crashing and brought the financial world to its knees.

In those 10 years, we have seen a flurry of government activity in Europe to reform our financial system and buttress the banks' ability to withstand future shocks.

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But while the system has become more resilient, what of the system's 'user'? Is the average Jane better protected from mis-selling and toxic products?

Barely. People in Europe now have the right to a basic bank account, and they are better protected when it comes to taking out a mortgage.

But the radical changes that are needed for consumers across the financial spectrum, and a culture change at financial institutions, are blatantly missing.

People are still at risk of being sold financial products they can't understand or don't need. If anything, investment, pension, insurance or mortgage products are getting more complex, not less.

Most people are lost when they're being sold risky products like convertible bonds, contracts for difference or investment-based mortgages.

That's bad news for today's workforce, which is being advised by financial institutions and governments to start saving early and more for their retirement.

And the returns look uncertain, as too often pensions are eaten into by layers of fees and commissions. What consumers need is access to a default, simple and standardised product in every financial category.

Consider also the 'advice' people receive when they enter their bank or turn to a broker to invest. The advice is usually nothing more than a sales pitch.

That might be acceptable when you enter a shop to buy a vacuum cleaner, or a pair of shoes, but it's different when it comes to finance. The financial, psychological and lasting impact of taking a wrong decision can have disastrous consequences.

At the European Consumer Organisation, we have recently released a website which maps many of the mass mis-selling scandals around Europe linked to bad advice.

Whether it's loans-for-shares schemes in Italy, the payment protection insurance scandal in the UK or the recommendation to take out mortgages in Swiss currency in Poland or France, the results have been devastating for millions of people.

Many of the scandals took place after the start of the financial crisis, so the argument that bad practices have been cleaned up doesn't stand up to scrutiny.

The link between giving financial advice and mis-selling should be broken. A ban on commissions and sales targets for the pushing of complex and poor value-for-money products to consumers would be a good starting point.

When these scandals emerge, supervisory powers should take swift action to enforce the rules and clean up the market.

A set of EU supervisory authorities was set up since the financial crisis, but they lack teeth and work mostly on the financial system's stability rather than consumer protection.

There is little political will from national governments to beef up their powers. The EU needs to push for common high levels of financial supervision across Europe, including giving the EU's supervisors more teeth.

There's probably nothing which better symbolises the lack of change after the financial crisis than the ongoing issue of consumer credit-related debt.

It reaches unhealthy levels in countries like Greece or Italy. The banks holding high levels would like to rid themselves of it, so the European Commission has proposed to act.

Dodgy debt-collectors

It has proposed to create an EU passport for debt collectors. The passport would allow them to operate anywhere in the EU but to be supervised only by the authority of the country they are based in.

In practice, this means a debt collector can be located in a country with a poor track record of financial supervision, yet operate with impunity in countries where there are higher standards of consumer protection.

Vulture investment funds could purchase debt from banks at knock-down prices and then employ the debt collectors with the most dubious practices to recover whatever money they can.

Vulnerable consumers would be placed in an even more vulnerable position.

It is the banks' negligent lending practices which are partly responsible for this situation, yet it is consumers who will have to suffer the most.

Consumer debt should be exempted from this proposal.

What Europe needs is real change to clean up bad practices in finance. It is a great shame that 10 years from the second largest financial crash in the world, too little has changed for the European consumer.

But it's never too late.

Monique Goyens is the director general of the ">European Consumer Organisation (BEUC) in Brussels

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