Fitch Ratings says that the French government's new Consumer Law project should enhance and reinforce professional best practices in credit lending. It also notes that among the preliminary recommendations from Athling Management's report prepared for the French Ministry of the Economy and Finance, the proposal to establish a credit database as part of the project is a first step towards addressing household indebtedness. The draft of the new legislation is expected to be announced in March 2009.

"Although the scope of the project has not yet been published, it seems that the aim is to limit aggressive credit product offerings and ensure greater transparency on credit products so that borrowers can make informed decisions," says Emmanuelle Ricordeau, Senior Director in Fitch's European Structured Finance team. "Moreover, stronger emphasis is being placed on banks to conduct a more complete screening of borrowers' solvency before offering any loans."

Fitch notes the establishment of a 'positive' credit database of loans granted to individuals, which shows, per borrower, current debt amounts granted by all lenders. This would benefit French lenders, as currently, they can only rely on borrowers' self-declarations of indebtedness when assessing their credit health. In Fitch's opinion, such a database will lead to a better assessment of the borrower's solvency and could help avert over-indebtedness not linked to unforeseen events such as redundancy and divorce. The agency also notes that the proposal to establish harmonised statistics on the revolving consumer loans market will help improve market transparency and enhance market participants' knowledge.

Fitch also notes that this new Consumer Law might further reduce loan origination when implemented. In the latest official figures, new loan origination in the overall credit sector (residential mortgage loans and consumer loans) saw a significant fall in November 2008, which Fitch attributes to the current liquidity crunch and the tightening of French banks' underwriting criteria. New French consumer loan origination from specialised lenders fell 17.5% yoy and 2% on a cumulative basis since January 2008 (personal loans: down 32.2% yoy and down 9.1% on a cumulative basis; revolving loans: down 8.1% and down 0.4%); whereas residential mortgage loans fell 22% yoy. Specialised consumer loans are expected to decrease between 3% and 3.5% for 2009, ie the lowest annual performance since 1993 (down 3.2% yoy).