The loss of jobs and the decline in real incomes caused by the 2008 financial crisis and the COVID-19 pandemic have affected consumers’ ability to repay their debts. This has led to high ratios of non-performing loans (NPLs), which affect the stability of the financial industry and undermine economic recovery. The result has been a need for faster debt enforcement and, consequently, a drastic increase in informal debt collection practices (IDCPs).
In the EU, the need to regulate and harmonize abusive IDCPs surfaced in 2018, in connection to the Proposal for a Directive on Credit Servicers, Credit Purchasers and the Recovery of Collateral (CSDP). The directive would enable banks to outsource the servicing of NPLs to a specialized debt-collector, but it contains no protection rules against abusive IDCPs.
In this article, I critically assess the need for harmonization of the legal framework concerning abusive IDCPs in the EU, mainly from the standpoint of the CSDP. Where necessary, I will refer to both historical and comparative law perspectives. I focus on the legal character of informal debt collection and its relation to financial services as well as its potential sui generis character. Thereafter, I will address the arguments for and against establishing a pan-EU sector-specific legislation dedicated to IDCPs. Next, I discuss the constitutional authority of the EU to regulate abusive IDCPs . Finally, I will examine the interaction of the CSDP with other consumer (financial) protection instruments to identify the best solution for harmonizing abusive IDCPs at the EU level. I will juxtapose several dichotomies: general vs. sector-specific, procedural vs. substantive, minimum vs. maximum harmonization, and hard vs. soft regulation. Finally, in the conclusion, I shall synthesize the core problems and suggest an approach.