A comparative analysis of the US and EU retail banking markets - Wsbi

6.2.1.3 Comparison
6.2.1.3.1 Size of the consumer credit markets
The increasing diversification and continuous innovation
of products in the consumer credit markets –
personal loans, credit cards from banks and large
retailers, leasing, equity release products, etc – adds
some complexity to the task of collecting the
relevant figures to compare the volume of
outstanding consumer credit in the US and in the EU.
Moreover, the definition of consumer credit differs
from one country to another (e.g. in Italy leasing and
factoring are not included in the consumer credit
statistics). The following figures are therefore
intended to provide a close estimation of consumer
credit markets which do not necessarily include
identical products.
The weight of consumer credit in the US economy
(17% of GDP) is nearly twice as big as the
corresponding figure for the EU 15 (9% of GDP).
In contrast, in the EU Member States with the highest
levels of consumer lending to GDP, it represents 15%
(UK) and 12% (Sweden) of those countries’
respective GDPs. In terms of volume of outstanding
consumer credit, the US figure for 2004 is nearly
double the EU figure for the same year (€1,616
billion for the US and €893 billion for the EU 15).
Despite these differences, it can be observed that
the pace of the annual growth rate in both credit
markets is the same (5%) between 2000 and 2005.
It is therefore possible to generally say that EU
consumers make much less use of this finance
instrument than US consumers. This can partially
be explained by a more generalised access to
credit facilities in the US and the higher amounts
borrowed by US consumers. While in average the
US outstanding credit per capita in 2004 was
€5,503, the corresponding figure in the EU is much
lower: €2,321.
These differences are also explained by the low savings
rate of US households compared to the relatively
high savings rate of EU households. In addition,
there are sociological reasons, in terms for instance
of spending behaviour, which explain this disparity
between the US and the EU. This is illustrated for
example in the average number of credit cards held
per capita: four cards per person in the US, while
only 6 out of 10 Europeans hold one credit card.
Regarding the evolution of the growth of outstanding
volume of, consumer lending the trend in the US
market has shown a positive and steady growth
between 1995 and 2004, with a more significant
increase between 1995 and 2001. In the EU, a
moderate and steady growth during the time period
examined is observed although the pace of growth
varies considerably from one country to another;
for example, in Greece and Finland the growth rate
(between 2000 and 2004) amounts to 209% and
158% respectively while in Germany and Denmark
it’s 6% and 5% respectively.
6.2.1.3.2 Regulatory framework overview
Consumer credit legislation was introduced earlier in
the US than in the EU, partly as a result of the fact
that mass marketing of consumer credit products,
notably credit cards, began in the US as early as in
the 60’s, and hence the need then to put in place a
regulatory framework to protect consumers from
unsolicited credit cards, unfair contracts and abusive
practices. Also the degree of complexity and range
of issues covered in the regulatory framework seems
to be much higher in the US compared to the EU.
The regulatory trend in the US system has been
towards an increased number of detailed rules at the
federal level aiming at improving the protection of
consumers in a wide range of areas such as credit
billing information, credit data reporting, debt
collection practices and equal opportunities to access
credit. The existing EU regulatory framework for
consumer credit aims to achieve different goals.
As such, the existing EU Directive on Consumer
Credit seeks greater convergence among national
laws of Member States, particularly in the area of
information disclosure, with the aim to achieve a
smoother functioning of the Single Market for
consumer credit in the EU. The Directive has been
modified on two occasions – in 1990 and in 1998 –
mainly to progressively introduce uniformity in the
calculation of Annual Percentage Rate of Charge
(APRC) in order to facilitate the comparison between
credit offers for consumers.
A new trend towards more ambitious goals than just
greater convergences and information comparability
is however initiated with the 2002 proposal to revise
the existing Consumer Credit Directive. A much more
ambitious degree of harmonisation is the objective of
the new proposal. This objective has resulted into one
of the more controversial aspects of the proposal.
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