Within the scope of prevention and transparency with regard to borrowers, the ASBCEF (Swiss Bankers’ Association) is looking to raise consumer awareness to the consequences of their commitment. The aim is also to define the reasonable limits of a loan and provide a safety margin in the event of unforeseen events.
Therefore, since January 2016, member institutions of the ASBCEF must systematically issue an information note to borrowers, describing the context of the loan agreement and the possible solutions.
Elements that characterise responsible lending
Switzerland is one of the strictest European countries in terms of consumer credit. One of the objectives of the Swiss federal law on consumer credit (LCC) and the self-regulation agreements is to protect the customer against the risk of over-indebtedness.
Member institutions of the ASBCEF therefore conduct an in-depth study of each customer, further to performing a thorough inspection of their profile, in order to propose tailored solutions and relevant advice as each situation is unique.
Analysing files on a case-by-case basis
The key element for the borrower is his/her eligibility for the loan. Indeed, the loan amount must be within the customer’s financial capacities. For this to be determined, the customer’s overall situation must be known, i.e. his/her income as well as his/her expenses.
Member institutes of the ASBCEF therefore systematically analyse the overall financial situation of the borrower and create a customised risk profile for each customer in order to accurately assess the loan request.
The credit institution can therefore determine the loan amount to which the borrower is eligible, based on the borrower’s budget, and taking into account the monthly repayments that must be made, as well as allowing for sufficient latitude to provide the borrower with a certain amount of financial flexibility when faced with unforeseen events.
In other words, this means leaving the customer a sufficient safety margin to amortise unforeseen risks, and thus avoid drowning in debt because of a loan that is crippling when coupled with an unforeseen event.
Allowing for financial latitude to overcome a reversal of fortune
The customer must keep in mind that many unforeseen events may occur during a loan repayment period. For example, the customer could :
- lose his/her job
- suffer a severe accident or a serious illness
- or perhaps go through a costly divorce
These numerous risks will have a direct or indirect effect on the loan taken out, as they can result in very significant changes to income or expenditure.
It is therefore very important to consider these risks before taking out a loan, and to provide sufficient financial latitude to amortise the consequences of such events. The consumer can minimise these risks thanks to targeted preventive measures.
The ASBCEF has issued several recommendations in this respect, as well as general principles for granting loans in a responsible manner.
Indeed, during difficult times, we strongly recommend you contact the financial institution concerned, and where necessary, the institution will be able to propose relevant solutions for the repayment of the loan taken out, with the aim of preventing the customer’s financial situation from getting worse.
To prevent the aforementioned risks, the credit institution can, for example, propose taking out additional insurance to cover the monthly repayments, with the aim of helping the borrower protect himself/herself against non-payment. This precaution can therefore be used to avoid over-indebtedness and bankruptcy. This is a reasonable measure that follows the saying: prevention is better than cure.
In all cases, the customer is strongly encouraged to seek advice from the lending institution to draw up a list of applicable solutions and measures tailored to suit his/her personal situation.