The interest rate is heavy on consumer loans

“Inflation, taxes for the poor, bonuses for the rich – said Francois Mitterrand. The increase in the cost of living reduces the purchasing power of households, which increasingly turn to consumer credit. According to figures from the French Association of Financial Companies (ASF), consumer credit increased by 8.7% in the first eleven months of 2022, despite when activity was recorded in November (-0.5%).

However, this growth reflects different realities depending on the nature and type of loan. Thus, individual loans, which increased by 9.4% during the period, showed a spectacular decrease of 17.5% in November (-5% in the last three months). According to the trade union, these loans “certainly penalized by the rate of attrition”. The interest rate, which represents the ceiling rate at which credit institutions or financial companies can no longer lend, differs significantly according to the amount of the loan, especially with limits above 6,000 euros, 3,000-6,000 euros and finally less than 3,000 euros. .

Wear brake

This rate is 5.79% (expressed as an annual interest rate, editor’s note) for loans over €6,000, which currently make up 40% of consumer loans. Adding a refinancing cost of around 3 or 3.5% over 5 years plus a risk cost of 1.5% and administrative fees of 1.5%, the borrower quickly finds himself at 6 or 6.5% and therefore the debt can’t buy », explains Françoise Palle-Guillabert, Director General of ASF. Hence, banks are strongly encouraged to wait for the next quarterly interest rate hike to revive the consumer credit pump.

This stop-and-go movement is well known to mortgage professionals due to rapidly rising interest rates. At Bersi’s request, the Banque de France even launched a market consultation to consider whether to update the depreciation rate monthly, at least temporarily, instead of waiting until the end of the quarter. . regulatory texts. However, the governor of the Banque de France has the legal right to depart from these texts in “exceptional circumstances” such as interest rate hikes.

On the other hand, loans below 6,000 euros, mainly revolving loans, work better. Thus, revolving loans increased by 13.3% in the first nine months of the year (+5% in November). This good performance can be explained by less restrictive attrition rates, currently 10.55% for loans between 3,000-6,000 euros and 21.04% for loans even less than 3,000 euros. It is the search for purchasing power that is fueling these loans in this segment. This dynamic is also noted by the Banque de France. ” Bank overdrafts grow slightly faster (compared to the rest of consumer loans) “says Bertrand Collès, head of statistics at the Banque de France.

Split payment, the new consumer weapon

Split payment, which allows households to pay for goods in three or four installments, generally at no cost to the consumer (the fee is paid by the merchant), continues to grow steadily, even if neither the Banque de France nor the ASF does. not publishing accurate statistics about this payment method. According to a recent survey by Harris Interactive, almost one in two French people (44%) will resort to split and/or deferred payment, which currently largely avoids regulatory restrictions on consumer credit. For more than 90 days.

One of the leaders in the sector, Floa Bank, a subsidiary of BNP Paribas, expects a 7% increase in its loans (all together). “Growth in 2022 is significant after 2020 and 2021 on average due to health crisis”Mark Lanvin, deputy managing director of Floa Bank, observes.

The success of these payment formulas in Europe has prompted regulators and the European Commission to better monitor them to prevent slippages that could create over-indebtedness. “More and more people are contacting us with direct debit issues, where there is the issue of split payments. Since nothing is checked on the consumer’s creditworthiness, the consumer can buy several goods without affordability, and all these debts accumulate in the following months. Julie Vanhill, General Secretary, Association for Defence, Education and Consumer Information (ADEIC).

for now, “We don’t see a significant increase in over-indebtedness,” Banque de France’s Director of Individuals Marc Begery says. For Marc Lanvin, risk seems well under control: “ these are often 90-day maximum loans, so there are no outstanding balances or collections. In addition, we refuse registered individuals with payment incidents in the same way as consumer credit “. However, split payment extends the repayment period progressively, up to 12 times.

Profitability in half mast

The draft reform of the consumer credit directive, however, aims to place all loans, including mini-loans and loans of less than 90 days, under the same regulatory roof, in particular the need to verify the customer’s solvency. These new rules should be implemented in 2023. “However, a product that is popular with both merchants and consumers should not be killed by applying excessively heavy customer solvency analyzes related to the amount and duration of the loan.” alarmed the manager of a bank specializing in split payment.

Especially since interest rate hikes are currently affecting the profitability of consumer credit players, a traditionally profitable activity. The latter cannot adjust credit terms as quickly as refinancing costs. Split payment players whose business is low margin should be affected first.

But even credit behemoths are struggling. According to the Bloomberg press agency, BNP Paribas is carrying out a major restructuring of BNP Paribas Personal Finance, especially around Cetelem, which laid a golden egg for a long time.