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Nearly 30 years required to obtain credit approval

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The “Good Finance” devotes its latest issue * to the consumer credit market. An interesting book, which first recalls the role of credit in the financing of the economy.

The image of banks and traditional credit institutions has certainly deteriorated considerably in recent years. This deterioration can be explained in particular by sometimes abusive commercial practices.

But it seems healthy to recall today, as this book does, that “consumer credit is necessary for growth (…). There is no bad credit per se. Bad credit is credit that is inappropriate for the expense it is supposed to face. This maladjustment has its source in the borrower and / or the lending institution.

Two passages in this book are particularly striking.

1- The revolving credit, the ugly duckling consumer credit.

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In the first passage that we address in this post, the authors characterize revolving credit credit “bad in itself”. This is even the title given by one of the authors, Good Finance, to one of the main articles of the book! Rarely have expert texts used such strong and unequivocal words.

However, despite a tarnished image, credit institutions may not be ready to abandon it in favor of more responsible credit, as revolving credit remains one of the most profitable products.

Indeed, the revolving credit enjoys a rate of wear well above that of the personal loan … in the second quarter of 2012 we note that the attrition rate of a “revolving credit” between 3,000 and 6,000 euros is 17.15%. For the same amount, the attrition rate of the “personal loan” is 13.27%! We understand why credit institutions tend to offer revolving credit rather than personal loan

2- The role of the legislator, innovation or security?

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Which brings us to the role of the legislator (the state). Indeed, it is he who sets the rates of attrition via the Cooperative Bank. Likewise, it is still he who decides which organizations have the “right” to distribute the credit.

Thus, the second significant passage of the book mentioned above is the one that details the path of the combatant of the Honest Bank to obtain its approval of credit institution for consumption. The entry of this actor on the consumer credit market is recent, and the authors trace back to 1982 (!) The beginning of the steps that resulted in obtaining this approval, initially refused by the Good Lender. economy and finance …

It is obviously necessary to see the credit market regulated by an independent authority. Indeed, not to mention foreign markets, just see the number of enticing proposals that some “individuals” are doing on the web … and which are in fact scams.

Thus, every time a person applies for a loan, he must systematically check that the lender is registered in the Regafi financial agent registry.

Unfortunately, this barrier to entry, while reassuring for the consumer, also promotes some inbreeding in the retail financing market. Like the mobile phone market, margins on distributed products and even more the distribution model of these products (refer to the previous point on revolving credit) do not necessarily go in the direction of the consumer.

Fear of novelty, excess of conservatism or protection of a monopoly on the part of the financial authorities?

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The interest of the independent regulator in a market as complex as the consumer credit is no longer to be proven. Now, the financial crisis that has shaken the markets since 2008 rebats the cards.

More and more new players are emerging in the financial services sector  and we could cite so many!), And it will be necessary that the Honest Bank accompanies this essential evolution of a sector which for the moment is too impervious to change and competition!

* “Consumer credit, a story that lasts”, Good Finance, 1 st half of 2012. Editions of Good Finance.