The over-indebtedness in Italy
(By Associazione Consumatori Piemonte )

OVERINDEBTEDNESS

- Definitions

Dealing with overindebtedness means finding at first a good definition thereof. We can surely see as overindebtedness “a situation of indebtedness which can be deemed unsustainable as to income level and its possible implements arising from selling personal activities”.
This means that overindebtedness means not merely being above a predetermined line of debts, but the impossibility of facing them either through job incomes, or rents, or yet what may come from selling owned goods.
Yet, it is possible to single out a previous phase to the pathological overindebtedness as described above, which is something like a ringing bell for the following step. This is the impossibility of facing everyday budget through a current income. When such unevenness between income and expenses becomes not only unsustainable but also unrecoverable though emergency moves such as commodities selling, this results in a situation leading to the economic bankruptcy of an individual or of a family.
The heavier form of overindebtedness made many worries in the Member States early in the 90s. On the contrary, in the late 90s and in the third Millennium it is more frequent what we can refer to as “excessive indebtedness”, which is proper of a high number of citizens-consumers whose income cannot match their spending trend.

- Causes

There can be many causes for the described situations. Some of these are difficult to explain, as we can see in the Italian situation. Here, a people good in saving (as described in statistics by Italy’s National Bank) constantly shows a high ratio of financially overindebted individuals, because of their poor certainness of income capacity.

Let’s try to find out some of these reasons:

1) One surely lies in the families’ high trend for consumes and investments, due to a groundless faith in their spending capacity. This is related to a somehow natural tendency to spend up to the limit of incomes, with virtually no influence of external factors.

2) By the way, it is clear that what described above is more frequent in families with a lower income than needed for normal consumes and investments. Late in the 90s, it could be seen that around 15% of the Italian families were overindebted because of poverty, difficult access to services, home precariousness and loss of producing capability. Clearly overindebted are families living below International Standard of Poverty Line, whose estimated number in Italy recently peaked 2,500,000.

3) Among what we can call external causes are those related to negative economic contingencies – back to Italy, we can remember, early in the 90s, hard Government measures of credit restraint and higher fiscal drag, along with the devaluation of the Italian currency. Following this, banks no longer allowed new loans and drastically limited those to privates and smaller entrepreneurs. On the other hand, previous loans in ECU or foreign currency forced investors to refunds at much higher rates than expected.

4) Something particular recently took place in Italy with the Euro, and its misleading “Richness Effect” due to a lack of perception of the new currency’s actual value – roughly 2,000 old Italian Lire. This led to a general increase of prices, not properly caught by inflation index and thus not compensated by an increasing of the consumers’ buying power – especially of those with a steady income, such as workers or retirees.
Because of it, many individuals can no longer stand the consuming level they were used to.

5) A final cause of this kind is due to recent financial scandals involving western Countries. Bankruptcies of great Companies assuring large rents made the loss of huge saving ratios. Especially when it was linked to the supporting of a steady wage, savers were forced to sell out their own goods to fill the gap.

6) Another reason for overindebtedness, as vanishing as dangerous, is the system’s pressure towards overspending. Back in the 80s, we watched media and makers pushing crowds to futile purchases, as a face of the hedonism of that decade and the early 90s. Presently, buying is primarily urged by Institutions, as an attempt to face economical stagnation through consumers’ spending, boosted up to its very limits.
Convinced by advertising and the general system of the importance of purchasing voluptuary goods, consumers recently exploited more and more various available forms of credit.
Assofin (the association collecting 95% of Italy’s operators in consumers’ credit), maintains that in 2002 about 28,930,000 financing operations were made – that is, 24.1% more than in 2001, and that the financed amount is €35.3bn – 7.1% more than in 2001 .
Researches made by Consumers’ Associations reveal that these new debts involve people too precipitous in contracting, who are often unaware of all credit conditions they get bound to.

- Types

According to the reasons by which it is produced, overindebtedness can be referred to as:

- active;
- passive;
- delayed.

Active overindebtedness is what arises from being unable of managing money and goods, due to a groundless faith toward spending trends. This is more typical of people running businesses of their own, who take for granted consistent incomes and overestimate profit who might run lower instead. When the worker’s economic commitment match anticipated high profits, cuttings in these produces overindebtedness.
Employees are less likely to get debts in such a way, even if it can take place because of the described consumers mobilisation.

Passive overindebtedness is when an unanticipated factor (such as firing, or public procedures related thereto; a sudden need of expensive health treatments; and so on) produces the lack of an income. When such a crisis is not merely temporary, overindebtedness stretches over the long run.
This kind of overindebtedness is also typical of the ones whose poverty can be seen as chronic, possibly for difficult access to credit, living below International Standard Poverty Line or hardly above it.

Delayed overindebtedness is proper of some kinds of families which are more and more frequent in Italy (unlike in Northern Europe) according to recent statistics.
- Families where sons and daughters remain even after becoming 30 years old, because of job access problems and frequent precariousness, or where they get back to their original family because of the end on their new one (because of divorcing);
- Families with a limited income, which is implemented by retiring wage of elderly people living with them.
In both cases, these families aren’t seriously indebted, but they find themselves in a heavy risk of sharing consuming and indebting duties beyond their actual capacity.
It has been calculated that the ratio of people in their 30s or more living in their original family stepped from 13.5% up to 20% within the 90s. According to themselves, the reasons for this are job finding troubles, but also fears for giving up high consuming standards.
Even more significant are data about support from elderly people. Families relying on incomes from these are 18% (up to 57% in Southern Italy). In such situations, incomes from elderly people is averagely 47% of the family’s total income.
As the income relied on is essentially temporary, such overindebtedness is referred to as delayed.

- Consequences of overindebtedness: usury

Usury is the gravest consequence of the overindebtee’s impossibility of acceding to legal forms of credit, just because of his or her insolvability. It is a very ancient, depreciable use.
In Italy, Act #108 of 1996 is the first and basic regulation providing objective guidelines as to weather a conduct is criminally relevant or not. This meant stepping off the judge’s discretion, which was bound to the determination of the crime’s subjective element.
Here are the Act’s main innovations:

- A rate line (one for each kind of credit), which is scheduled by the Treasury every three months according to the current rates. Beyond this line, the crime exists automatically.
- Prescrition time starts from the day either capital or interests were handed over for the last time;
- A Found of solidarity to victims of usury and one for prevention of usury are introduced.

- An analysis of the present

In these years of economic stagnation in industrialised Countries, the general system is proving as blind as it never was in the past. Instead of filling the gaps between social classes – which would lead to actual, more even buying powers – futile and irrational consuming is encouraged, through a special action on weaker, steady-waged classes with a snaky threat of job losses.
Such en encouraging proves a “economic peace tool” , no matter if it can be the road to overindebting.
Still, the trend to make the “Great Consumer” hasn’t proven successful to the Governments of the richest Countries. Following various crises (made heavier in Italy by the Euro), a decrease of consuming is taking places, unavoidable even as to essential goods. This is just being carried out by a Middle Class which can no longer play a key role in economic progress, because of a personal feeling of poverty and overindebtedness.

- Proposals

On a cultural point of view, avoiding overindebting requires going in-depth in family management, especially with poorer classes, by showing income and spending checks to guarantee to make it to the end of the month, given a reasonably steady wage.
Generally, more an aware, rather than undifferentiated and irrational way of consuming should be encouraged.
On the legal point of view, some basic innovations would make an higher protection as to consumers’ credit.
- a transparent, comprehensive information of all credit conditions, with a chance of clearing the contract should this information be given vaguely or unfairly;
- a control over advertising – proper sanctions to those who make up false advertising regarding forms and conditions of credit,
- in credit recovery, allowing the indebted a delayed refunding plan, to be convened between the parties even within a judicial procedure, such as conciliation before the Justice of Peace.