Chapter 15: Applications for Consumer Credit

Question 1

Application for credit

Answer 1

Credit provider looks at background for risk of default or bad debt

Consumer provides info about income and expenses.

Question 2

Income

Answer 2

Consumer must provide income and income stability using .e.g salary statement, employer statement, tax return

Can be affected by:
* mortgage interest tax relief
* rental housing tax allowance
* Healthcare insurance tax allowance
* child benefits

Question 3

Expenses

Answer 3

Expenses for consideration are those that continue despite financial setbacks, e,g, housing, insurance, loans, spousal support

Other factors apply such as moving to a new home or purchasing a new car

Question 4

Assessment of credit applications

Answer 4

• Creditworthiness
• credit history
• legal capacity
• available security
• personal impression

Question 5

Creditworthiness

Answer 5

Material risk of providing credit

Mainly income available each month to pay for loan interest + repayment (known as Borrowing Capacity)

Various codes of conduct apply
* VFN by Dutch Finance Houses Association
* NVB by Dutch banking association

Question 7

Credit History

Answer 7

Indication of moral risk
Looks at if consumer has failed to pay loans in the past

Credit history checked with the Bureau for Credit Registration (BKR)

Question 8

Legal Capacity

Answer 8

E.g. Children cannot enter legal contract without permission, thus 17yo cannot take out a loan

Question 9

Security

Answer 9

Providing a right of pledge or suretyship will reduce the risk of the credit provider

Question 10

Personal impression

Answer 10

Credit provider will create a personal impression of the applicant

e,g, is customer fully aware of the obligations

Question 11

Bureau for Credit Registration

Answer 11

Legal obligation to check credit history with BKR on:
* Non-revolving credit with a term of 1 month or longer and credit sum of 250
* Continuous credit with credit limit of 250 or higher
* current account credit of 250 or higher
* mortgage
* credit cards
* leases
* etc

Question 12

Consumer protection

Answer 12

Consumer is considered a vulnerable party

Legislature takes measure to protect consumers with precautions including max credit rate, required info to consumer and measures to prevent overborrowing

Question 13

Max credit rate

Answer 13

Max limit is set by law for credit rate (interest) to prevent super high rates for poor borrowers

Question 14

Duty to provide info to the consumer

Answer 14

Credit provider must inform consumer in plain language and accurately

Full loan sum should be clear, IRs, etc