Changes in social attitudes are often very hard to pinpoint in time. We know the before and the after well enough to label the before as different from the after, but we can rarely identify a precise moment in which before became after. Take the consumer society. At what moment in time had attitudes towards modern consumption patterns changed sufficiently for us to identify their general acceptance? Legal history can help here. Regulations, the law, and jurisprudence mirror society and thus change with it. That means we can track shifts in how societies see particular issues by examining proposed legislation, case law and jurisprudence, and particularly lawyers’ debates about those issues. Of course one cannot always pin down whether shifting legal opinions lead society or the other way around, but at least those shifts enable us to date changing attitudes a little better.

Consumer credit regulation offers a good case in point. Historians have interpreted the rise of consumer credit use during the 1960s as marking the advent of a consumer society in the Netherlands, for instance, without really probing the timing or significance of this phenomenon.2 Economists examined the evolution of consumer credit, but omitted to ask what made attitudes change.3 By contrast, tackling the subject from a legal history perspective enables us to do just that, because it was a tightly regulated issue. Moreover, from that perspective we can trace changing attitudes better than, say, data about purchasing power or sales of consumer durables can do, because, unlike such figures, debates about regulation yield arguments about what ought to be permitted or not, and why. Doing that requires harnessing what legal historians do, i.e. interpreting the evolution of the law from the perspective of history, to the concerns of the social and economic historian, that is to say, tracing how and why attitudes in society change, with the risk of pleasing neither discipline.

We decided to take the risk and undertake to compare Belgium with the Netherlands in the expectation that, starting from a similar legal basis and ending up under the same regulatory eu umbrella, attitudes to credit would closely resemble each other and follow similar trajectories of change. We find three marked developments. First, seen from a legal perspective consumer credit users emancipated. Until the Second World War they counted as potential victims of desire, ineptitude, and ignorance. However, new legislation introduced during the 1960s treated all citizens as alike and perfectly capable of judging for themselves if credit would be bad for them. Henceforth credit was seen as part and parcel of modern consumption patterns, which we take as the full acceptance of the consumer society in all its ramifications.

Second, the increasing complexity of modern financial products gradually eroded the equality of all citizens before the law, as one exception after another had to be made from the underlying general assumption that all consumers could judge for themselves. Third, despite the common legal point of departure and the shared European regulation, attitudes towards consumer protection continue to show subtle differences between the two countries. Belgian legislators nursed a distinct suspicion against the free market as a source of mischief and they continue to do so, resulting in a range of protective measures for consumers. By contrast, their Dutch counterparts have always shown a greater trust in the market and individual responsibility as safeguards against mishaps, which minimized intervention.

We proceed chronologically and reach back to the early nineteenth century to show how the two countries, despite a common legal point of departure and shared social prejudices about the dangers of consumer credit, diverged from each other when it came to protection. During the 1960s and 1970s attitudes changed in both countries, effectively rendering consumers equal before the law. European regulation adopted that same principle, but added an important new one: the Information Paradigm, the idea that consumers choose responsibly if properly informed. Even so the consumers’ equality before the law did not last since one exception after another had to be made. Moreover, as it became clear that consumers couldn’t be expected to digest all kinds of information, the paradigm adopted turned effectively into a paradox.

Initially consumers were not seen to need protection, with regard to credit or anything else. The Low Countries inherited equality before the law as constitutional principle from the Enlightenment and translated this during codification into a formal rule of contractual freedom.4 People are free in their transactions, in choosing a counterparty, and in setting conditions.5 The French Code civil framers considered this formal contracting freedom as fundamental for both individual and general welfare: freedom of contract would boost the economy, because every deal enriched contracting parties.6 Credit transactions formed no exception.7 If parties agreed an excessive interest rate, that was up to them, so borrowers had to fulfill loan contracts until expiry.

Even so the law made an exception for pawnbroking and did this already under the French occupation (1795–1813), that is, long before the ‘social issue’ debate during the second half of the nineteenth century pilloried widespread malpractice. As the root of evils like usury and social depravation, pawnshops were subjected to a licensing system which amounted to a formal ban.8 However, the system foundered on the government’s dithering. It clung to the ban while omitting to provide the necessary alternatives to pawnshops. Consequently they simply remained in business, with license or without.9 In 1826 the Dutch government attempted to solve this problem by instructing the municipal loan banks to curb usury.10 This failed to work as well, because the pawnshops typically supplied small loans of a few guilders, which the loan banks could not or would not handle for reasons of cost and space.11 Repeated attempts to bridle pawnbroking with new legislation foundered in Parliament until it finally passed the Pawnshop Act of 1910.12 This Act acknowledged usury and the rising number of pawnshops as social evils, however without accepting them as sufficient reasons for making an exception on the principle of contractual freedom.13 In reply to parliamentary questions the government professed itself unwilling to confront a deeprooted and accepted phenomenon like pawn credit and put its hope for eliminating it on education to teach people how to achieve economic self-sufficiency.14 Therefore the Act did not do much more than an overhaul of the license system for pawnshops plus new regulations for their keeping of records; their customers did not get any form of protection.

Towards the end of the nineteenth century a different form of ambivalence, one determined by class prejudices, surfaced in reactions to new forms of consumer credit. When purchasing household furniture or clothing upper strata of society received credit a matter of course, others mostly bought on tick for victuals like bread and milk or at cafés, with social control mechanisms ensuring reasonable conditions and regular repayment all around. However, hire-purchase and installment schemes brought durable consumer goods within reach of people on low incomes, raising fears that they would use these facilities to live beyond their means and social status. These new credit forms also remained impervious to the usual mechanisms of social control, while getting a dubious reputation because the seller-creditor’s power over buyer-borrowers was seen as conducive to one-sided conditions and usury.15

Belgian legislators tackled these credit forms from the perspective of usury, defined in the 1865 Act concerning money lending as a misdemeanour, both for professional lending and for consumer credit.16 As the law put it, lenders committed usury when they misused a borrower’s needs, weaknesses, passions, or ignorance to obtain, on behalf of themselves or others, an interest rate exceeding the normal rate and the cover for the loan’s risk.17 Therefore this concept of usury consisted of two elements, a subjective and an objective one. On the one hand the creditor must knowingly misuse a borrower’s weaknesses, for instance by exploiting a penurious situation to negotiate a higher interest rate. On the other hand the interest charged may not exceed the going market rate plus, depending on the case, a surcharge covering a borrower’s insolvency risk. A poorer borrower thus needs to pay more interest than financially sound ones, because the lender runs a higher risk of non-payment.18 One potential source of usury, compound interest or ‘anatocism’, was given particular attention. When in arrears borrowers had to pay not just interest over unpaid installments, but also over unpaid interests due, which could lead to a rapidly spiralling debt.19 For that reason Belgium bound compound interest to tight regulation. Only interest due over actual sums borrowed could be subject to new interest charges, and then under very strict conditions, that is to say in fulfilment of a court order or a special transaction, if and when that order or transaction concern interests due for a minimum of one whole year.20

Though curbing the usury associated with the new forms of consumer credit formed an equally powerful public concern in the Netherlands, the government failed to design effective legislation covering them, for two reasons.21 First, for technical legal reasons hire-purchase and installment credit fitted badly in the commercial law system and lawyers debating the issue showed themselves better at raising objections than at finding practical solutions. Second, lawyers clung to the hallowed principle of contracting freedom and would not consider making an exception for usury, let alone consumer credit.22 The lengthy debates highlight the deep social prejudices underlying them: in the Netherlands, as no doubt in Belgium, too, the constitutional principle of equality before the law mirrored a society in which class distinctions were taken for granted, as was class-bound behaviour. Hire-purchase and installment credit were considered dangerous as means to seduce people on low incomes to live above their status on credit. Instead, people should first learn how to manage money properly, and learn to save before taking credit.23 Lawyers did criticize unfair clauses in hire-purchase and installment contracts. The lawyer and liberal mp P.H. de Kanter pilloried them in parliament as early as 1891, while the following year two academic dissertations about installment purchases were published.24 One of them advocated binding legislation and notably a ban on sellers formally keeping ownership of goods sold, because, as the author put it, the state ought to protect its citizens, especially the propertyless, against self-inflicted damages incurred through inexperience or weakness.25 However, in 1902 the Supreme Court rejected that view.26

Four years later the Dutch Law Society (Nederlandsche Juristen Vereeniging or njv) discussed the need for legislation covering installment plans. Both keynote lectures noted the near absence in the Netherlands, unlike Germany, Austria, Britain, and the us, of jurisprudence, data on the prevalence of consumer credit, and of academic debate.27 In the debate following the lectures some of the society’s members pleaded emphatically for a total ban, but an overwhelming majority held fast to the principle of contractual freedom and the individual citizen’s obligation to be on their guard in any transactions.28 The njv felt no immediate need for legislation, let alone a ban. A small majority considered a change in the law desirable, but only as part of a more general commercial law overhaul designed to give consumers various guarantees: fairer clauses covering shortfalls, clear rules for extensions, and a statutory duty to repay installments not due.29 That overhaul never happened, but a court ruling in 1931 fulfilled some of these desiderata by stating that a hire-purchaser in arrears had to return the property concerned, in order to be freed from paying the remaining installments.30

Meanwhile five mps had tabled draft legislation to combat usury.31 Referring to recent reports about malpractices in the so-called people’s credit business, these initiators wanted binding contractual rules and state supervision of the institutions concerned. Their proposal led to Parliament passing the 1932 Credit Providers Act (Geldschieterswet), which at last curtailed the hallowed freedom of contracting. Pawn creditors were put under government supervision through a licensing system and the imposition of mandatory transparent conditions with maximum rates. A standing commission made sure the rules were applied.32 That same year another government commission reported on legislating installment plans. The report avoided moralizing, denied the existence of malpractices and claimed that installment purchases and hire-purchase boosted retail sales. However, the commission did identify some points of friction, including a declining willingness to meet payment deadlines and expensive legal procedures, and its proposed remedies made a half-hearted step towards consumer protection. Hire-purchase and installment plans, though market-determined, did require legislation in order to protect consumers against their own ineptitude. That would have to be achieved by imposing statutory duties to provide information on buyers and sellers, by state supervision on door-to-door selling, and by certain statutory contract clauses.33 These proposals were on the one hand realized in article 1576 bw (Civic Code), and on the other in the Installment Providers Act which imposed a license system to tackle usury and door-to-door selling.34 Contrary to the 1932 Geldschieterswet, this license system never worked since the government failed to enact the supervision of installment providers.35

Thus from a similar legal point of departure the two countries reacted very differently to hire-purchase and installment plans. Whereas Belgium sacrificed contracting freedom to consumer protection early, it took the Netherlands some seventy years before doing the same.

After the Second World War both countries showed a curious phenomenon. Rising incomes boosted the use of consumer credit, but social prejudices against it remained virtually unchanged. Immediately after the war the Dutch government, fearing that post-war scarcities would combine with strong pent-up demand to create serious bottlenecks, introduced consumer credit restrictions. In 1946 all pawnshop licenses were cancelled and the issuing of new ones halted, rendering the Pandhuiswet an empty shell, because existing pawnshops were allowed to remain in business.36 That same year the government also created a scheme for people wanting to buy ‘indispensable consumer durables’. The scheme entailed a system of tightly regulated, non-profit loans in the form of vouchers with which people could buy goods like shoes, clothes and certain household goods at designated shops. The system’s provisions for rescheduling payments in case of arrears were remarkably lenient.37

Intended as provisional, these measures triggered a debate about overhauling the existing legislation concerning pawnshops and installment plans. Some authors noted that consumer credit rose without a rise in abuse.38 At the same time an official report on installment plans clung to received opinion about trusting the market while reiterating the pre-war prejudices. The supply of credit to people with little means ought to be left to the free market, hemmed in only by regulations to curb excesses and protect economically weak social groups against their inexperience and thoughtlessness.39 The debate resulted in the 1961 Installment Plans Act (Wet op het afbetalingsstelsel), which retained the licensing system while giving a better definition of installment plans and imposing a statutory duty on sellers to check the creditworthiness of purchasers.40 Three years later the high street banks set up the Bureau for Credit Registration (Bureau Krediet Registratie or bkr) as a central repository of transactions enabling the mandatory checks. Affiliated lenders agreed to obtain prior information on all borrowers of sums between 250 and 100,000 guilders, to register all transactions, and in all respects to act ‘in a way as behoves good sellers on installment and lenders on installment’.41 This form of self-regulation is a form of ‘soft law’ that counts as an effective means of regulating producer-consumer relations.42

Belgian legislators showed similar attitudes. In 1955 a government reply to parliamentary comments on a draft installment purchases law acknowledged the increasing popularity of this credit type, but underlined at the same time that it enabled ‘people on low incomes to buy goods which they could not buy cash without saving first’. That was exactly where, according to the government, a social danger lurked. The combination of long payment terms, low payments, and the immediate enjoyment of the coveted product could easily lead buyers to overestimate their ability to pay and, worse, to turn a blind eye to the hidden high interest rates. The power of modern advertising increased that danger still further, by fuelling desire ‘ambiguously and indeed fraudulently’. The reply added particular economic objections to an unbridled expansion of installment purchasing, such as exaggerating business fluctuations, stimulating consumption over investment, and inflation.43 The proposed law central, public register for installment plans remained a good intention for the moment.

Towards the end of the 1960s opinions in the Low Countries changed, however. Prodded by the commission supervising the 1932 Geldschieterswet’s license system, the Dutch government submitted a proposal to replace that Act.44 The proposal’s title, Consumer Credit Act, eloquently summed up the changed conceptions which the government’s accompanying motivation spelt out.45 Consumer credit was no longer regarded as a dubious excess to be bridled through the firm supervision of creditors, but presented as a normal aspect of modern society in need of guidelines. In a remarkable conceptual turnaround, the government even labelled consumer credit saving in hindsight. No wonder that the proposal targeted a group much bigger than the socially weak and the usurers parasiting on them. The draft law was meant for all ordinary citizens and included regulations for all new kinds of credit offered by the high street banks.46 Promulgated in 1972, the act retained the regulatory principles which the 1932 Geldschieterswet had shown to work, i.e. the prevention of creditor malpractices through a licensing system, transparent conditions with maximum rates, and government supervision.47

Thus the 1972 Consumer Credit Act (Wet op het consumptief geldkrediet) marked a clear break with the past in four respects. First, the old social prejudices had disappeared. Consumer credit was no longer seen as a threat to particular social classes, but accepted as a normal part of modern living for everybody, a facility enabling citizens to consume. Second, this conceptual switch translated into the government dropping the close focus on protecting the weak, in effect recognizing the equality of all consumers before the law. In other words, the Act accepted all citizens as classless consumers differentiated primarily by income level and spending patterns. Third, the normative idea that people should first learn to save had disappeared. Fourth, the principle of contractual freedom was sacrificed to the need for consumer protection.48 This watershed coincided with changing behaviour. Between 1960 and 1970 rising disposable income boosted the amount of consumer credit supplied from the equivalent of 65 million euro to 814 million.49 Even so two-thirds of respondents people interviewed for market research purposes during the second half of the 1960s expressed themselves against installment purchasing.50

Similar changes in attitude and behaviour occurred in Belgium. Early signs were visible by 1964, when government proposals to bring personal loans under the same regime as installment purchases avoided all qualifications about the likely target group, as did the subsequent parliamentary debate on the proposals.51 In 1977 the government submitted a consumer credit law to parliament which acknowledged the equality of all users by simply referring to consumers.52 Sent back to the drawing board by parliament, the government unveiled a new proposal in 1987, its motivation showing a full emancipation of consumer credit. The fast growth of amounts supplied and the absence of serious problems demonstrated that consumer credit’s negative connotations had disappeared; it had now become a key function of the consumer society which rendered goods accessible to a wide public. Borrowers fulfilled their obligations generally quite well, despite signs of rising excess debt cases. The law was designed to reduce their number, in part through mandatory registration of transactions at the central debt administration bureau which had finally been set up two years earlier, in 1985. That institute did not belong to the private sector, as in the Netherlands, but formed a department of the Nationale Bank van België, the central bank.53 The Belgian Consumer Credit Act (Wet van 12 juni 1991 op het consumentenkrediet) reached the statute book in 1991.

Consumers’ equality before the law had hardly been achieved or it began to be restricted again by European regulation.54 In 1975 the European Council adopted the so-called Information Paradigm as the first general principle of consumer protection, the idea that consumers, if given correct and complete information, will take rational and proper decisions.55 Consumers must therefore inform themselves before buying, but they will only be free to choose if they possess sufficient and correct information.56 Conversely, sellers have mandatory information duties.57 That information may concern either the legal position of the consumer, for instance their right to cancel within a fortnight, or practical data such as the price or the cost of goods or services.58 Sellers must show themselves active in providing all relevant information, because they are often in a better position to obtain it.59 Access to credit information bureaus enables lenders, for instance, to better estimate the possibilities for repayment than consumers can do.60 The mandatory duty to inform can have considerable implications. It was ultimately raised to a fundamental consumer right.61 The information paradigm does have a flipside, however. Consumers can only choose judiciously if properly informed, but then they are also responsible their decisions.62 Careless or imprudent consumers must therefore expect firm treatment.63

These principles were enshrined in the first European consumer credit directive, issued in 1987 to harmonize the varying levels of consumer protection in member states.64 To reduce the scope for legal shams, it dropped the customary terms of hire-purchase and installment credit and instead adopted a broad, functional definition of consumer credit derived from American conceptions and covering all forms in one go.65 The guideline formulated minimum requirements for consumer protection, including statutory license systems for creditors, a written contract, mandatory information duties, limits to repossession rights, and a right for borrowers to early repayment.

Interpreting the directive, the European Court of Justice formulated two general principles. First, following the principle of the law serving the watchful, the Court defined a kind of Mr. and Mrs. Normal: an averagely informed, prudent, and watchful consumer.66 Second, unlike people in business consumers deserve protection because they have a weaker position.67 Sellers of products or services will often present consumers with non-negotiable standard contracts.68 The character of relationships between sellers and buyers may also weaken the latter’s position, for instance if it leads them to believe that a business representative, say their bank’s client manager, will propose solutions which suits them, rather than the business, best.69 Information asymmetries between sellers and buyers also weaken the latter’s negotiating position, because the former always possess more information.70

The first European directive and the subsequent Court decisions treated all consumers alike and aimed to provide minimum protection levels in member states. Soon those levels began to diverge more and more. Free to impose additional requirements, member states discovered consumer protection as a practical cover for all kind of protectionist policies, damaging the free circulation of goods and services, for instance the scope for crossborder credit flows.71 Moreover, national courts retained the authority to apply the directive’s guidelines to local circumstances, thereby rendering them increasingly particular. Finally, the mandatory information duties failed to bring about greater harmonization, but rather a creeping differentiation between consumers by country. The multitude of European languages, for instance, posed certain a-priori demands. French consumers cannot be expected to understand a loan contract in Italian, so national legislators may impose mandatory language requirements to protect consumers.72 However, that requirement must be proportional to the consumer protection envisaged.73 Member states may thus force foreign creditors to translate their loan contracts.74

In short, what counted as normal in one member state could not in fairness be called that in another one. This led to different gauges for normal consumer behaviour depending on circumstances, society, culture, and product or service.75 At the same time Mr. and Mrs. Normal were increasingly differentiated following the recognition that their ability to choose responsibly depends on circumstances, and that circumstances often require extra consumer protection.76 Consumers facing doorstep salesmen, for instance, have a weaker position, the more so if they need certain things and sellers know this.77 Somebody with a strong need for money will accept conditions sooner than a borrower without pressures of time or money.78 Distance to sellers means buyers need extra protection, because as a rule they cannot really see, let alone test, the goods or services.79

Consumers may also become more vulnerable as a consequence of how they handle information. They do not always act with perfect rationality, they may possess sufficient information, yet fail to act accordingly, for instance because they underestimate the likelihood of loss of income through illness or job loss.80 Finally a specific group of vulnerable consumers were recognized, i.e. people of whom it could be expected that their mental or physical handicap, their age, or their gullibility exposed them more than others to the risks of particular trade practices or products.81 As it turned out it proved not always easy to delineate this target group from the average consumer.82

The divergence in protection levels between member states made the eu realize that consumer protection should be raised to a higher level all around. A new guideline, adopted in 2008, retained the functional definition of credit transactions of the previous one.83 As a result the guideline’s coverage was extended to wage claims, the partial transfer of future income for a lower amount than will be paid, and to new products like flash loans.84 However, the guideline makes no statements about mandatory licenses for lenders apart from the options mentioned in contract law, sanctions, and supervision.85 Conversely, member states may apply the guideline to subjects formally not covered by it. Thus the Netherlands and Belgium have brought free loans and those above 75,000 euros and below 200 under the guideline.

The new guideline also testified to a changed conception of consumers. On the one hand lenders were put under fairly comprehensive mandatory rules of behaviour, including information duties both in publicity and prior to closing a transaction.86 Transactions also needed to be entered on standard forms disclosing the lender’s identity, and detailing the loan’s terms and conditions such as particular form, duration, and cost, and the borrower’s options to early repayment or cancellation. Lenders must thoroughly inform themselves about borrowers’ creditworthiness and ensure that they do not overburden themselves with debt; if transactions appear irresponsible, lenders should not enter into them. Those mandatory duties run more or less parallel to the particular fiduciary duties which the courts, prompted by cases about complex financial products, imposed on their providers from the 1990s onwards.87 However, when deciding relatively simple consumer credit transactions Dutch judges continued to hold consumers to their own responsibility, which should have kept them from overburdening themselves with debt.88

Meanwhile national and international authorities woke up to the fact that mandatory information duties for financial service providers are not enough,89 because a large percentage of consumers do not understand what the information provided.90 If consumers are to assume their own responsibility, they need to become, in modern parlance, ‘financially literate’, which they seldom are. Consequently, the Information Paradigm leads to an Information Paradox: to be free to choose, consumers must be forced to absorb information that barely interests them. Consumers take little active interest in their financial affairs. A 2007 survey in Belgium showed that only 35 percent of those questioned had looked for information from two or more banks.91 Apparently consumers consider the bother of getting all information to outweigh its use.92 This highlights another consequence of the Information Paradigm mentioned above. Accepting that informing consumers is the best way of protecting them also means accepting that consumers are liable for the consequences of their choices.93 Regulatory authorities are reluctant to accept that consequence. As a result initiatives for the financial education of consumers retain a certain degree of paternalism which partly defeats the purpose of campaigns to improve consumer protection. Therefore the search for alternative forms of consumer protection must be continued, if only because it is a fact that people find it difficult to improve their financial skills.94

Our comparison of changing attitudes towards credit and consumption in the Low Countries showed, first of all, a negative view, based on social prejudice, of consumer credit as a vice mainly affecting people on low incomes. At the same time the two countries developed, from a highly similar legal basis, different policies to tackle perceived ills. To combat usury, Belgium curtailed the Code de Civil and the Code de Commerce’s hallowed freedom of contracting. However, Dutch lawyers baulked at that and preferred to trust the market’s ability to balance interests and eradicate injustices, until the Geldschieterswet in 1932 introduced a combination of mandatory standard contracts and government supervision of the sector. This difference between the two countries became more marked over time, Belgium showing a mistrust of the market and a tendency to intervene, the Netherlands relying more on the market and on soft law and the consumer’s own responsibility to prevent mishaps.

During the 1960s general attitudes towards consumer credit changed in both countries. As rising disposable incomes boosted credit use, credit came to be seen as a normal part of modern life and modern consumption patterns for everyone. New legislation eliminated previous prejudices and rendered all consumers classless, equal before the law, a momentous shift in attitudes which in our view marks the general acceptance of modern consumption patterns in all their ramifications, i.e. the advent of the consumer society. However, that equality before the law did not last. European consumer protection legislation adopted the Information Paradigm, the principle that properly informed consumers make rational choices, in which case they are responsible for what they choose. Hardly had Mr. and Mrs. Normal been created or consumers were being subdivided into more and more categories deserving of protection because of their recognized inability to absorb sufficient information at the right moment. At the same time the increasing complexity of financial products hollowed out the mandatory information duties to the point of becoming useless, resulting in an information paradox: consumers can only be considered responsible if they could be brought to stomach a mass of indigestible information. Both governments have put their hopes on financial education to bring consumers to do just that, but the Information Paradigm has fragmented the mass of consumers, once all equal before the law, into numerous special interest groups deserving attention for one reason or another.