The Consumers' Over-indebtedness under an Italian Contract Law Perspective: The Current Status and the Way Ahead

The essay points out that over-indebtedness and its related issues regarding consumers protection cannot be tackled simply by public law regulations, nor by insolvency provisions alone, such as the ones contained in Law n. 3/2013 and in similar statutory instruments enacted in many European countries: contract law rules can help preventing over-indebtedness and also offer remedies once the debtor has become over-indebted. Nevertheless over-indebtedness challenges traditional contract law concepts and rules. Notably, with regard to prevention of over-indebtedness, the Italian legislator has failed to put in place specific remedies in case of non-performance of the “hybrid” duties, to assist the borrowers and to assess their creditworthiness, which have been set on lenders by the Directives on credit for consumption purposes and mortgage credit; at the same time, the provisions on standard unfair contract terms, usury and late payment interest do not suffice to protect debtors from the risk of over-indebtedness: those rules address only certain types of harmful conducts by lenders and, in order to be applied to a wider range of cases, they need to be complemented by the principle that compels the creditor to exercise his rights and defenses in conformity with good faith and that forbids any abus du droit (Article 1175 Italian Civil Code). Moreover, traditional contract law remedies do not offer an effective protection in case of bounded rationality of the borrower or exploitation by the lender of the consumer’s information asymmetry or economic distress. Once the condition of over-indebtedness has occurred, the unforeseeable events causing the difficulty or inability to repay (financial hardship) do not excuse the debtor in case of breach of contract under the rules on general obligations. In order to cure the problem, in the context of the specific relationship between creditor and debtor, the adjustment of the contract’s terms can be regarded as the most effective remedy: the debtor is entitled to the modification of the contract terms under the principle of good faith. Conclusively, the Author argues that insolvency law remedies – discharge among them – should be seen as a last resort means of protection, a form of social insurance, applicable in case of failure of all other remedies. The insolvency perspective is indeed aimed at tackling a social problem, while, on the contrary, the implications of the relationship between the borrower and the lender should be addressed at an earlier stage, by the rules on credit contracts supplemented by the general principles of contract law.