Esta es una entrada para apoyar la entrevista en la SER con ocasión del Día Internacional de la Mujer dado que no es posible cubrir tanta información con detalle en la radio. Escribo en español dada la importancia y repercusión de este día histórico en España y con el objeto de transmitir una información que estimo esencial para continuar el debate.

 

Tras la huelga de mujeres 1975 en el ámbito laboral y doméstico seguida por un 90% de las mujeres en Islandia  hubo un punto de inflexión, nada volvió a ser lo mismo en materia de igualdad no sólo formal sino real.

 

Pero ¿cómo se consigue esa matriz de igualdad real para las mujeres que necesita ser apoyada además por los hombres (el otro 50% de la población)?

 

Articulando la familia, sociedad y la economía sobre estos principios fundamentales:

 

• Derechos para todos (hombres o mujeres)
• Obligaciones y derechos van a la par, son dos caras de una misma moneda. Izquierda y derecha deben conciliarse. Se promociona el trabajo y la actividad económica a la vez que se articulan políticas públicas interrelacionadas y conectadas entre sí de familia, igualdad, educación, empleo, pensiones y fiscalidad … encaminadas a la igualdad real.
• Objetivo fundamental plena incorporación mujeres y hombres al trabajo (independencia económica más que dependencia familiar) pero libertad última para el individuo de elegir en cada fase de su vida lo que estime más conveniente

 

Diversas políticas públicas

 

A. ESTADO: Apoyo a la natalidad y a la familia con permisos de duración media (9 meses)

 

A.1. Permisos de parentalidad comunes tras nacimiento y/o adopción y no transferibles salvo circunstancias excepcionales (falta de padre/madre, estado salud muy grave/hospitalización y/o cumplimiento de pena de privación de libertad)

Derecho a 3 meses para la madre (no transferible), 3 meses para el padre (no transferible) y 3 meses (transferible) a repartir entre padre y madre a su elección. Permiso se ha tomar dentro de los 2 años siguientes, salvo 2 semanas obligatorias para la madre tras parto/adopción (flexibilidad máxima a negociar con empleador).

Islandia reconoce que el ideal sería 1 año, si es superior la investigación muestra un riesgo importante de no reincorporación al mercado de trabajo. De momento no hay fondos para ampliar el permiso a 12 meses.

Estos permisos colocan a hombres y mujeres en una situación de igualdad real dado que el empleador desconoce de antemano quién o cuándo tendrá descendencia y gozará de ese permiso (cualquier hombre y/o mujer de entre 15-50/60 años puede decidir ampliar su familia). Tras la entrada en vigor del sistema un 90-100% de hombres/padres han gozado de los permisos (la cifra bajó a 90% tras la crisis de 2008).

 

A.2 Permiso da derecho a un 80% del último sueldo a cargo de un Fondo Especial del Estado (con mínimos y máximos)

 

A3. Se otorga una paga única para padres/madres no trabajadores (ie. 3000 euros en 2004) con residencia legal en Islandia superior a 12 meses

 

A.4. Red de guarderías públicas de asistencia voluntaria que cubran al 100% población en todo el territorio (menores entre 1-6 años)  a coste razonable (300-400 euros con posibilidad de ligar el coste a la renta de los padres) y con deducciones por dos o más hermanos/as.

 

B.ESTADO/EMPRESA: Lucha contra la brecha salarial en sector privado y público (12% media según últimos datos disponibles)

 

B.1. Nueva ley 2018 rompe secreto salarial, obliga a certificaciones para empresas de más 25 trabajadores y prevé aplicación sanciones diarias en caso incumplimiento

B.2. Ley de 2013 que recomienda quotas de incorporación de mujeres (mínimo 40%)  a los consejos de administración para empresas de más de 50 trabajadores . Intento de romper el techo de cristal por la vía voluntaria sin sanciones. De momento no se llega al mínimo.

 

C.ESTADO/EMPRESA: Sistema fiscal que prima la actividad económica pero luego redistribuye vía impuestos (alta fiscalidad indirecta al consumo e impuestos especiales)

 

D. ESTADO/EMPRESA: Sistema de pensiones mixto

 

D.1. Mínima pensión (1500 euros) a cargo del Estado (atención rentas de alquiler se restan a la pensión), los trabajadores la amplían gracias al trabajo si han cotizado para una pensión privada

 

D. 2. Cargas sociales razonables con tarifa plana para cubrir pensiones (8% a cargo empleador y 4% a cargo del trabajador con posibilidad de ampliación de cargas por ambas partes si el trabajador así lo decide)

 

D.3. Pensión individual transferible que se capitaliza en un fondo de pensiones durante toda la vida laboral

 

D.4. Sistema de pensiones no-intergeneracional (obviamente a considerar por España únicamente en un futuro sin aplicar retroactividad)

 

E. ESTADO/EMPRESA: Educación en igualdad (escuela e Universidad) (mínima educación privada ya que el sistema público funciona muy bien)

 

F. INDIVIDUOS/ÁMBITO PRIVADO FAMILIA Y SOCIEDAD:

 

Toma de conciencia de fases de dependencia en la vida de las personas y de la necesidad de promover igualdad real (no sólo formal) apoyada en la máxima: nuevos derechos para todos/todas.

 

ATENCIÓN: ISLANDIA no es tampoco un paraíso y existen igualmente problemas sociales de género pendientes de resolución:

 

• Masculinidad tóxica: Violencia de género y abusos sexuales a mujeres y menores todavía muy poco penados por la ley (1-3 años) y que provocan prácticamente 95% casos inmunidad
• Pervivencia de clanes masculinos de poder que perviven en sectores de alta remuneración (sector judicial)
• Ciertas tradiciones de socialización por sexos (no hay práctica de pandillas mixtas a partir de adolescencia, chicas y chicos tienen sus clubes de deportes o intereses por género). Ejemplo: Clubes de “costura” únicamente femeninos o clubes cerrados de caza/pesca (u otros intereses) masculinos

The promise of constitutionalism rests on a “great modern fallacy” (as the Swiss historian Jacob Burckhardt called it) according to which citizens can rationally and deliberately adopt a new constitution to meet their needs and assent to a social contract. While a Constitution is obviously for the people, not a single one has never been written by “we, the people“ but rather by some “founding fathers“. In the history of comparative constitutionalism, Iceland has showed how this fallacy may one day come true. And that is why constitutional experts from around the world follow this process very closely.

But what is really happening in Iceland transcends the promise of a new constitution. Put in simple terms, what we witness is a process of destitution/deconstruction of a legal order and a revolutionary upheaval or call for constitution/reconstruction of a radically different one. Sociologists and social scientists know well how progress is not linear as history advances in waves or tides of reform followed by impasses or even regressions. In 2016, Icelanders seemed trapped between constitutional upheaval (calling for the enactment of the constitutional draft voted on October 2012) and continuity (deciding by political consensus on the reform of three selected issues).

What is important to signal, however, is that the new constitutional legal order that many citizens asked for after the crisis reflects a fundamental change of paradigm and is not well understood by the ruling political elite. It is a democratic call to provide legitimacy to the constitutional text following Rousseau´s ideal (who required the assent of all to the original social contract). For a new generation of citizens, the main concern is to provide for legitimacy through universal participation in constitutional and law making rather than secure stability or preserve the political status quo.

This call coming from the people challenges the legal reality in a way difficult to explain to those not familiar with legal philosophy. The validity of Icelandic legal system is based on a double test which can be summarized in two words: legality (formlegt lögmæti) and fairness/fundamental rights (réttmæti). This is typical in a positivist legal order. In continental Europe, on the contrary, (ie. Spain, France, Italy, Germany) the legal theory requires a third pillar for the law to be validly formulated, adopted and recognized as such: legitimacy (efnislegt lögmæti). This is requirement that the law is initially and subsequently consented by the people and that it is also good for the people. Reasons for the different legal theory are historical. As European constitutions were redrafted in the aftermath of wars, a departure from positivism was necessary. After lenghly debates a triple test was conceptualized and adopted bringing a third factor into the formula: law = legality + fairness + legitimacy (Radbruch, “Five Minutes of Legal Philosophy”, Oxford Journal of Legal Studies 1945 reprinted 2016 and Pattaro and Iturmendi Morales, Filosofía del Derecho 1980). In this formula none of these concepts is more important than others, a balance is reached case by case but all three must be there for the law to respect the so called “rule of law“.

We are now at the crossroads where we witness a confrontation between legality and legitimacy as opposing values. A substantial part of the society dares to rejects laws (or even Constitution) originally drafted and later interpreted by an elite. The society is polarized. There is a deep mistrust on the parliament (Althingi). The fiction of the ultimate validity of the current constitutional text looks like a broken mirror. More and more citizens and some political parties question the natural supremacy of “the law of laws“ based on formal aspects and excluding its content. They simply reject the thesis of a hierarchical pyramid where the authority of the supreme norm is self-justificated and tautological but the people is excluded. They reject legality as an exclusive and excluding theory. Drawing on Carl Schmitt, they argue that the constitution has a superior value not by its formal aspects nor by constitutional history but by the fundamental decision of the people (the real constituent power) and by virtue of the supreme value of its content.

This call for “legitimacy“ is a deep revolutionary legal claim that challenges the current status quo and is not yet conceptualized. This word does not exist as such in Icelandic legal language as scholars considered the consent of the people to be relevant for the political science. As reality nevertheless has proved, Icelanders have understood very well the importance of the concept in practice since they could reject in two referenda (Icesave 2010 and 2011) a legislative act adopted by their Parliament. In a parallel way, the collection of signatures requesting different petitions to the authorities is stronger than ever (the last petition to invest in the publich health sector is by far the largest with more than 85.000 signatures in 2016). Rather than ignoring this deep call for reform, I will argue that it is better to formulate the legitimacy demand and ground it to the proper legal theory with a view to ameliorate the current debate. For this reason, I would like to propose a new trio of words that may be useful to formulate the concepts and resulting theory that is requested by many citizens. In Icelandic common language we could resume it in a simple formula: Lög/Stjórnaskrá = lögmæti + réttmæti + „þjóðmæti“.

This formula reflects obviously the view of a new generation who wants a radical change of society. It means the end of an era where citizens were happy to leave government and constitutional matters in the hands of the governing class. It is a deep call for more democracy, true representation beyond elections and real accountability of the political elite. A new political reality emerges. Sovereignty is not conceived as an authority that the people permanently transfer and alienate to an external entity (Parliament) but rather as a supreme and inalienable right of the people that is delegated to representatives who are then accountable for it in a permanent basis. The legitimacy is not only given every four years through elections but is to be won day by day. In this perspective, the call is for the supreme power and authority of the Parliament to be limited and counterbalanced by citizens/civil society. It means a new political and legal order. This should not surprise us after all since State authority in a modern democratic society is constantly limited in the name of human rights and/or supranational/international entities that rule over economic issues (EU Treaties or EEA agreement).

The claim for legitimacy to be part of the (constitutional) legal order has been formulated by society, it just needed a proper name/concept („þjóðmæti“ in common language but „efnislegt lögmati“ for legal experts) and supporting legal theory. A debate is now necessary to argue pros and cons of this approach and work towards +democracy. Whether we see constitutional upheaval or continuity is still to be seen. At the end of the day, only history will tell whether this other continental vision of law and a new constitutional making that really includes the citizens prevails or not in Iceland.

 

This article has been published in Icelandic in the journal STUNDIN on 23 March 2016, I thank Ólöf Pétursdóttir for an excellent translation.

http://stundin.is/pistill/logmaeti-og-thjodmaeti/

 

PS. The critique of formal supremacy and legal positivism is obvious when Schmitt paraphrases Kelsen: “A law “is valid when it is valid and because it is valid”. CARL SCHMITT, CONSTITUTIONAL THEORY (Jeffrey Seitzer ed. & trans., Duke Univ. Press 2008) (1928).

 

 

Commenting on the statement done in page 24 (lögmæti verðtrygginar) "Thvi verdur ad teljast afar haepid ad aetla ad verdtrygging verdi daemd ologleg af theim grundvelli ad hun samraemist ekki Evroputilskipunum um neytendalan."

See Report and news at Eyjan http://eyjan.pressan.is/frettir/2013/12/16/bann-vid-verdtryggingu-sagt-draga-ur-velferd-andstadan-byggd-a-misskilningi/

1. The author forgets to mention that the letters from the European Commission put forward a different opinion on the problem (letter 12.2.2013 to Prof. Méndez Pinedo og letter 20.2.2013 to Samtök Heimilanna).
See letters at

http://www.heimilin.is/varnarthing/frettirhagsmunasamtokin/item/1627-sv%C3%B6r-fr%C3%A1-framkv%C3%A6mdastj%C3%B3rn-esb-um-ver%C3%B0tryggingu.html

2.  Directive 93/13/EC prohibiting abusive clauses applies to both consumer and mortgage credit.

3. Commission Recommendation 2001/193/EC introduced more than a decade ago a European code of conduct for home loans where transparency of information and disclosure of real cost of credit at the time of contracting is the main paradigm of protection for consumers.

4. The European Parliament has recently adopted the the Mortgage Credit Directive based on the same model

See all European legislation in force and new Directive on mortgage at
http://ec.europa.eu/internal_market/finservices-retail/credit/mortgage/index_en.htm

5. Both Icelandic legislative power (Act nr 33/2013. Neytendalán) and a Committee of specialists reporting for the executive power (Skýrsla Apríl 2013 - neytendavernd á fjármálamarkaði) expressed doubts on the legality of indexation in the light of EU/EEA legal order but left the interpretation of the law to the judicial power.

6. The issue is now under judicial review at both national/European level. The Supreme Court has sent a request to the EFTA Court  in October 2013 requesting an opinion on the interpretation of Directive 93/13/EC to Icelandic indexed loans. The report was probably finished before but the District of Reykjavík has very recently requested another opinion adding the Directive 87/102 on consumer credit (now Directive 2008/48/EC) and general principles of European consumer law to the matrix.

6. It is now for the EFTA Court to decide on the legality of indexation in the light of all European consumer (credit) law applicable in Iceland through the EEA Agreement since 1.1.1994 taking into account the most recent and relevant case-law from the Court of Justice of the European Union.

We should expect an assessment of inflation indexed loans with special focus on mandatory requirements for disclosure of information (Directive 87/102/EC) and prohibition of abusive clauses and commercial practices (Directives 93/13/EC and 25/2009/EC).

Some guidance given by CJEU (non exhaustive list of relevant cases).

Case C-350/03 Schulte 2005
Member States must ensure that a bank which has not complied with its obligation to inform the consumer of right to cancellation bears the consequences of the materialisation of those risks so that the obligation to protect consumers is safeguarded.

Case C-240/98 Océano Grupo Editorial SA v Roció Murciano Quintero 2000
Abusive clauses are those who cause, contrary to the requirement of good faith, a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer.

Case C-76/10 Pohotovost 2010
Application of Directive 87/102/EC on consumer credit. National courts can declare that the failure to mention the annual percentage rate (APR) in a consumer credit contract means that the credit granted is deemed to be interest-free and free of charge.

Case  C-453/10 Pereničová and Perenič v SOS 2012

National legislation may provide for a contract between a consumer and a trader which contains an unfair term to be void if that ensures better protection of the consumer

Case C-618/10 Banco Español de Crédito SA v Joaquín Calderón Camino
Spanish procedural legislation is not compatible with EU law in so far as it makes impossible or excessively difficult protection for consumers under Directive prohibiting abusive clauses.

Case SC Volksbank România C-602/10
Member States can expand scope of Directive 2008/48 to offer better consumer protection in areas non harmonised by directive (mortgages, retroactive protection, prohibition of charges, direct access to justice)

Case C-415/11 Aziz v Catalunyacaixa
Spanish national procedural law on evictions from property deprives consumers from protection against abusive clauses and is illegal under European law.

Case C-92/11 RWE  (lack of transparency of price variation clauses - public law). Assessment by national courts.

Directive 2003/55/EC (Internal market in natural gas) and Directive 93/13/EEC (Articles 1(2) and 3 to 5). Contracts between suppliers and consumers – General conditions – Unfair terms – Unilateral alteration by the supplier of the price of the service – Reference to mandatory legislation designed for another category of consumers – Applicability of Directive 93/13 – Obligation of use of plain and intelligible language and transparency.
See paragraphs 47 and 49

“47. A standard term which allows such a unilateral adjustment [of price] must, however, meet the requirements of good faith, balance and transparency laid down by those Directives“.
“49. ... the contract (must) set out in transparent fashion the reason for and method of the variation of the charges for the service to be provided, so that the consumer can foresee, on the basis of clear, intelligible criteria, the alterations that may be made to those charges...“

Case  C 488/11 Asbeek Brusse and da Man Garabito v Jahani BV,
On the consequences of unfairness. The effective implementation of the Directive 93/13 requires that courts declare the terms wholly unbinding: reducing a penalty instead of considering it as never stipulated would weaken the dissuasive effect of the European rules.

C-59/12 -BKK Mobil Oil  BKK Mobil Oil
Public law bodies  can fall under the personal scope of the Unfair Commercial Practices Directive 2005/29/EC. the practices of public institutions can thus qualify as unfair commercial practices. But the criteria to determine public from commercial practices are in the end remains unclear.

 

***

In light of the above, according to EU/EEA law acquis and case law from the Court of Justice of the European Union, any specialist in European consumer law may very well argue that price-indexation clauses which are not disclosed in a plain and intelligible language and transparent in the contract are potential abusive clauses in European law.The prohibition of abuse applies to both consumer credit and mortgage credit and to public and private institutions.

Under European law, cconsumers are only obliged to pay the amount given as credit (principal) and the cost of credit disclosed at the time of contracting (interest and indexation cost properly calculated under the European standard rules of APCR).

What remains to be adjudicated is whether an act of a national parliament (Act 38/2001) can escape the prohibition of abuse set by European law. And, in the light of the case RWE, wheter mandatory legislation may allow the financial institutions to do non-disclosed and unilateral alterations of the price of money (cost of credit) once the credit contract has entered into force. 

The final assessment of the legality of indexation, the framework applicable and the interpretation of national law/European law is for the EFTA Court and the Supreme Court of Iceland, not for the Central Bank (through a report done by an employee). For this assessment, the whole body of European consumer law must be taken into account, not only the Directive on consumer credit (information requirements) referred to in the report.

OPEN LETTER TO THE PARLIAMENT

ON PRICE-INDEXED LOANS (VERÐTRYGGING) AND THE NEED TO IMPROVE CONSUMER LAW IN THE AREA OF FINANCIAL SERVICES AND RECONSIDER PENSION SYSTEMS

 

Yesterday I went to talk to the Althingi, Efnahags og Viðskiptanefnd. I tried my best to explain to our elected representatives why I consider that the current trial to allow indexation as it is practiced in Iceland is illegal in the light of European law and why the current legislative proposal is doomed to fail. If we do not want to breach European consumer, contract and credit law, it is extremely important that the indexation is treated as  European Directives establish. This is the system that 27 other countries follow in Europe.

The total cost of the credit has to be calculated, disclosed in advance according to the unique formula  which the European Directive 2008/48/EC establishes. Furthermore, and this is very clear in the answer from the European Commission in its letter from 12.2.2012, financial institutions may not charge one króna more than it is disclosed, calculated and agreed by the consumers in the plan of payments as regularly revised and disclosed (ie. once a year). Otherwise they just engage in abusive practices which are illegal and invalid in European law. The European Court of Justice has already declared that banks have not the right for charging more than what it is disclosed in the contract. The case-law is very clear. Information disclosure duties are linked to prohibition of abusive clauses and misleading practices. These issues cannot be disconnected.

Today a lawyer has made a very good point to me that it is very necessary to add to the discussion. If financial institutions do not implement verðtrygging properly, they are responsible towards consumers for the damage caused. If the legislative power mis-implements European law, there is a case for State liability towards individuals and economic operators.  This is very important to remember because it shifts responsibility towards tax payers.

Unfortunately I am not sure my message is passing through. I still have to consider in peace and quiet the changes proposed by the majority of the Committee regarding the calculation and disclosure of verðtrygging which seem insatisfactory at first sight and too complicated for ordinary citizens to understand. However, I miss almost all the suggestions I put forward to the Parliament on June and November 2012.

As for the main alledged benefit of the price indexation which is access to credit and distribution of burden of cost through 25-30 years, let me clarify this. There are solutions to help those who have difficulties accessing credit, such as providing flexibility to extend the credit in time when interest rates go above a limit beyond their financial capabilities. Other solutions are used in Europe. Our current system gives way to a perverse dynamic since it leads to overindebtedness of families, promotes inflation which is tax on our savings and raises the price of properties encouraging a vicious cyrcle.

I hear often that, without the verðtrygging, interest rates would go up to 20% excluding most ordinary people from credit. This could be of course true in a short term because research in the area of consumer law proves otherwise mid-term. A good regulation of access to credit which encourages people to save have a beneficial effect. There is less money in circulation, less inflation and house properties keep prices down to earth, since people cannot afford expensive properties. I always give an example. When I moved to Iceland in 2001 there was not such a big credit supply as ILS provided a maximum amount of 20K. An ordinary apartment/house in Reykjavík costed 25. Only those having paid for the first house could afford to buy more expensive properties and go up the ladder-scale of properties. A more egalitarian society since most expensive houses costed 50K. The house of somebody with a very good income (ie. a Minister, a former judge) would be double size/prize/value  than the house of a normal working family. Fair enough. More equality and less discrimination.

I also told the Committee why the current legislative proposal needed to be strenghened in many other ways as I had indicated to them in my written submission: better supervision, responsibility and liability, fines, remedies for citizens, etc. It is a paradox that some of these issues are present in the old Neytendalán 121/1994 but not in the new proposal.

 With all respect, I firmly but politely repeat  my requests this time in public. 

I urge the Government and Parliament  to improve consumer protection in financial services and discuss in depth all the points I brought forward regarding the proposal. A new Committee appointed by Prime Minister will deliver a general report in March but I worry it will be too late for this proposal on consumer credit law.

The price indexation debate involves discussing the pension fund systems as well.

I know that price-indexation is unnaturally linked in Iceland to the profitability of pension funds. We must clarify this point.

The indexation of pension benefits is not naturally and directly dependent on the indexation of house loans. Law is a social science, not immutable physics. We can decide to change that. In fact, no other country in Europe has this system where the sort of one category of actors (private pension funds and elderly people) is dependent on another category of people (debtors with price-indexed loans). 

Please correct me if I am wrong. As I understand the system in Iceland, pension holders (citizens) do not receive indexed payments or pensions. Indexation works only directly for the general benefit of funds, not for the final holders of the rights.

In Iceland the pension fund system is organised mostly through a contributive system within a private law scheme (civil servants having a separate system).  A complementary non-contributive system (almannatrygging - assistential system) is offered by the State for those most in need who have no private pension benefits.

In Spain  the system is also mostly contributory, financed through contributions of workers and employers. Like in Iceland, there is a minimum assistential system (not based on individual contributions) for those most in need. However, the pension system is mostly organised through public law not private law. Social Security law but not Business law. It is a system based on the principle pay-as-you-go, where the current generation finances the expenses of those going into pension.

In Spain the opposite system works. House loans are not indexed but pension rights and payments are indexed. The ones needing the indexation are those who cannot increase their income to adapt to the cost of living because they are economically inactive. Pension holders have the right that their pensions are adjusted to inflation once a year. I repeat, their benefits must follow inflation. That is the law. The amount of public pensions is agreed once in a year by the Parliament when the general budget is approved and indexation and inflation taken into it. It is only in extraordinary circumstances - such as the ones that Spain is going through now - that indexation is not automatically given to pension holders reflecting real inflation.This is so because the general pension system is public and organised by the State. Private pension funds are optional for those who want to complement their future income and they have been promoted as alternative source of income in the last decade. In Spain, the duties towards the elderly (right to a decent pension) are taken by the whole society as a gratitute for their efforts. The tax system and the general budget is the tool used to provide for solidarity, education, health and social benefits.That means providing decent pensions both based on contributory and non-contributory systems of social protection.

My claim is not that we have to follow the Spanish way. It is just a comparison appropiate for discussion. My opinion is that this pension system which seems impossible to challenge in Iceland needs to be reconsidered as well. What are the costs? What are the benefits? How does it deliver compared to other systems? Is it sustainable? How can we possibly justify a private system and another for public employees guaranteed by the State?Should we consider a general public system?

I say so because in a democratic country, when a transfer of wealth must be done between one category of people to another, from one generation to another... for reasons of solidarity and the needs of the common good.... it is a duty for the whole society to think about these questions: what do we owe to the others? how much can we help taking accont of our resources?. The dignity of our elderly is a fundamental pillar of society. Precisely for this reason, it is for the democratically elected the Parliament to approve that transfer of wealth between the haves and the haves-not. It seems more natural to do this transfer through the budget of the State rather than through private pension funds. This is precisely the role of legislator. In short, it is unnatural and undemocratic to deal with solidarity towards our elderly (right to decent pensions) through a system of business principles, property law and the price-indexation of house loans.

To solve the problems of our pension funds in Iceland, some economists have suggested to change into a different system of pension rights, pay-as-you-go system. This is something we need to study better. In this sense, I encourage this discussion and a full comparison on pension systems taking into account the best standards and practices in Europe and in Scandinavia.

Returning to verðtrygging, consumer protection and financial services....this is what I have requested to Althingi. My petition is done on the basis of my research which refers in a general way the best practices in European and international comparative law. My intention is not to diminish the quality of life of pension holders but, on the contrary, to raise a discussion which guarantees a proper democratic debate on all issues interrelated and the adoption of the best legislation and policies possible.

I also urge our present and future Government and Parliament to reply to these questions, not to me but to all Icelanders. Why don´t we deserve a high standard of consumer protection as the G-20, World Bank and EU are promoting? The US has already reformed consumer credit law and protected consumers against abusive clauses and predatory practices?  Why do you still believe that transparency alone can justify abusive clauses unbalanced and biased against consumers? Why responsibility on future inflation falls uniquely on consumer side while it should be shared between creditor and debtor? Why do you want to continue a system that promotes inflation and does not provide direct indexed benefits to pension holders?

 

++++++++

Proposals sent to the Althingi on a better consumer credit and mortgage law

 

Outside European consumer and credit law regulating cost and disclosure of credit, prohibition of abusive practices and misleading commercial practices;  European law has not harmonised these specific  issues for which there legal autonomy for the Icelandic legislator (it is implicit that legislation will ameliorate position of consumers, not deteriorate their legal standing and substantive rights):

 

 

-     Over-indebtness (the assumption is that ex-ante information will protect consumers from themselves but it is quite predictable that ex-post policy making will appear at European level because of the tragic consequences of the financial crisis on households and small companies in peripheral countries of Europe)

 

-     Interest-ceilings (currently in force in countries such as France)

 

-     Explicit usury prohibitions (regulating or prohibiting interest on interest or anatocism by compound interest)(although they fall in general consumer law under the prohibition of unfair clauses and unfair commercial practices)

 

-     Cost of credit (where principal of the loan remains stable with some exceptions)

 

Based on the most recent literature on the topic , a good  institutional and legal framework to protect consumers in the field of financial services would be based upon the following lines of public law:

 

-     Regulation of  their activities through licenses with supervision by Financial Services Authority and other public institutions (ie: Competition Surveillance Authorities).

 

-     Responsible borrowing and lending through better legislation: this means reform at the crossroads of  financial services and consumer law in order to guarantee financial stability and sustainable growth. Consumer credit law could become a sort of lex specialis in contract law, both at national and European level.

 

-     Taking seriously and protecting consumer´s economic rights so that legislation is not biased towards financial institutions  (ie: reform of law of guarantees, overindebtness and personal bankcrupcy which is fair towards consumers indebted in good faith which fall into trouble due to external circumstances such as financial crisis, loss of income, change of family status, loss of mental or physical health, etc.).

 

-     Ombudsman for general supervision in the field of debt, credit, debt and over-indebtness and for signalling systemic problems which call for regulatory/legislative action

 

-     Consumer Protection Authority with proper jurisdiction to resolve problems affecting consumers and financial institutions through Alternative Dispute Resolution (mediation, conciliation or arbitration mechanisms)

 

-     Support for associations (NGOs) defending consumer rights and incorporating their input into regulatory/legislative agenda

 

-     Consumer empowerment (improving education and information or financial literacy)

 

-     Codes of conduct for the financial sector industry and ethical banking

 

Based on the same literature , another pillar would be built upon substantive private contract law with a system of remedies  and enforcement before courts(procedural law)  along these lines:

 

-     Providing a defence and a test of unfair contracts and reversal of proof similar to the UK for all issues falling outside European directives

 

-     Creating a remedy of invalidity redress with power of judges to intervene when test of fairness is violated or when a breach of European consumer law happens (ie: clause of interest non disclosed or disclosed with a mistake would lead to partial invalidity of contract and non-application of clause)

 

-     Awarding possibility of financial damages or compensation for victims of abusive practices in the financial sector (and even criminal law sanction to prevent systemic abuse and fraud) and adapting enforcement to their own needs

 

-     Making better use of current injunction system allowing consumer associations to challenge systemic abusive practices.  The Administration should support this system sharing regulatory enforcement powers with private organisations previously accredited to defend consumer interests.

 

-     Remedying the excessive reliance on individual litigation ex-post (when problems have arise) by focusing on prevention measures and allowing public interest litigation (solving problems between consumers and institutions before they escalate into gigantic debt is better in the long term)

 

-     Iincreasing access to justice for collective interests (providing legal standing or procedural rights for consumer associations concerning problems affecting big numbers of consumers – collective actions)

 

-     Promoting legal aid and legal advice for most vulnerable or for those in financial need in the field of consumer credit and debt.

 

As far as Icelandic problems in the field of financial services, these are my specific recommendations:

 

It would be very advisable for the Icelandic Parliament to legislate on the consequences of the lack of disclosure of the right information to the consumers (as it is the case with many contracts verðtrygging without ex-ante disclosure of risk and financial consequences of future inflation). The solution to leave it to the national judicature on the basis of contract law has created uncertainty so far. It should take a stand and declare that partial nullity or total nullity of the contract will follow – whatever is more favourable to consumers. At the end of the day it is consumers who should have the last choice when the right information about their financial obligations is not provided rightfully to them and their consent is vitiated.

 A real effective institution with powers to protect and defend consumer interests with injunctions is necessary in Iceland. The legislative proposal mentions Neytendastofa as the institution that will represent consumers.  Neytendastofa has been involved in the drafting of the legislation and is not neutral in this regard. Our experience since first consumer law was imported in this country from Europe shows how this institution 1) lacks the necessary regulatory powers and/or 2) decides not to use the powers being captured by other external interests. Specially after the financial crisis in 2008, Neytendastofa has miserably failed in their mission of protecting consumer interests in Iceland. One may wonder the effectiveness of such institution from the perspective of tax-payers. Why should we finance a failed institution? It seems better to start anew. The regulatory and supervision powers need to be improved dramatically. I suggest the creation of a true and new Consumer Agency in this country with the due budget and human resources and with a section specially dedicated to financial services, credit and debt.

 As regard financial inclusion and access to credit by all sectors of population, other strategies can be followed. These include the promotion of ethical banking, cooperative-lending, interest-free money and loans for public purposes and common good. We need to take a much broad perspective in consumer credit and financial services and re-think our monetary policy.

 

In the year 2012 I got a grant from the University of Iceland to do research on this problem. I promised to clarify the legality of this practice in EU/EEA law, to write an article and to disclose the conclusions to the whole Icelandic society.

The whole amount of the grant is destinated to finance the doctoral studies of Irina Domurath, Ph.D. candidate at the University of Iceland and University of Copenhagen during 2012. She does research on the need of a new paradigm of consumer protection in the area of credit in European law under my supervision.  Her doctoral research has been financed for the period 2012-2015 by the University of Iceland with another grant from Research Fund.

There is no other personal disclaimer to be done. I work independently on this problem following only my knowledge and convictions, I have received no financial compensation for this research from external associations/organisations and I do not have a vertryggt loan myself.

Conclusions of the research - academic article now being prepared for submission to an international journal in consumer law with peer-review procedure

 

Verðtrygging or the indexation of financial obligations to inflation is, in reality, real effective interest calculated a posteriori (instead of nominal interest predicted by financial institutions ex-ante).

 In my opinion that it is illegal in the light of European law and Directive 20089/48/EC to indexate the principal of the loan and payments of interests to reflect inflation a posteriori (ex-post).

 This is so because under Icelandic current framework and new legislative proposal on consumer credit this means in fact that the principal is left undeterminate and is unclear. The information and transparency paradigm on which the Directive is based fails completely. The information and plan of payments given to consumers is always wrong by definition as effective real inflation cannot be stated beforehand. The total cost of credit and  the amount of the principal are therefore by definition inaccurate.

The European Directive works with the hypothesis, definition, methods and formula supposing we have a clear principal of a loan determinate. Consumers must know the total cost of the loan so that they can commit responsibly to their future financial obligations.

A European Form is obligatory for all financial institutions offering credit in EU/EEA Member States. The cost of credit must be calculated within the rules of Annual Percentage Rate of Charge, not outside. The method of calculation is harmonised at European level so that consumers can compare between offers of different providers of financial services competing between them.

Icelandic current practice of verðtrygging goes against responsible borrowing and lending as it encourages overindebtness seducing consumers by initial low payments and by hiding the real cost of credit over the life-spam of the loan. Furthermore banks have incentives to promote inflation because they benefit both from the creation of money/debt and from real inflation which put damages and consequences  on the side of consumers.

See Directive and obligatory information which needs to be disclosed

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2008:133:0066:0066:EN:PDF

Furthermore in Iceland consumers pay for the cost of credit twice: with nominative interest calculated and agreed before hand and with effective real inflation indexation ex-post. But not only, in most cases, interest on interest on interest is regularly consolidated into the principal giving way to an extreme form of anatocism which - in some European countries- would be forbidden as usury.In the light of European consumer law, this would qualify as an abusive clause which must be null and void according to the case-law of the Court of Justice of the European Union and European legislation prohibiting  abusive clauses and abusive commercial practices.

To adjust to inflation, European  considers two main options: the payment of nominal interest charges agreed beforehand (fix rates of interest) or revisable regularly (variable rates). European law does not work on the hypothesis of real interest charged a posteriori. A price-indexation scheme such as it is practiced in Iceland is not incidental but is the main feature of the total cost of credit for debtors. For this reason it cannot escape the scope of the methodology foreseen by the Directive. 

Indexation of payments of interest (not the principal of the loan) could be in accordance with the Directive  if the method is properly disclosed ex ante (pre-contractual and contractual stages) and it is done through the required technique of Annual Percentage Rate of Charge.

See Guidelines of the European Commission on calculation of cost of credit and Annual Percentage Rate of Charge

http://ec.europa.eu/consumers/rights/docs/guidelines_consumer_credit_directive_swd2012_128_en.pdf

European legislation does not harmonise cost of credit itself as long as it respects the European framework on transparency, information and does not constitute abuse. Some countries such as Estonia have high interest rates fro credit while other such as Germany have low interest rates.  My criticism refers therefore to the methodology applied for the cost of credit in Iceland, not to the fact that the ISK króna requires high interest rates due the problems of economic governance, to its instability and size which increase risk for creditors.