If one must get a loan, one should do it the safe way and make sure not to end up lik ****************************************************************************************** * Když se zadlužit, tak bezpečně. Hlavně nedopadnout jako Uroboros ****************************************************************************************** January 6, 2012; By: Lucie Kettnerová; Section: Interviews & Portraits Surveying the Czech consumer loan market, assessing the quality of individual lenders and public an instrument that will enable them to easily compare financial institutions. Those goals of the Safe Loan Navigator project created by a team headed by Prof. Ing. Michal Mej the Institute of Economic Studies of the Charles University Faculty of Social Sciences. i- the project with its manager PhDr. Petr Teplý, Ph.D. When was the project carried out and how was it financed? Our institute has been dealing with the subject of finances for a long time and therefore that we should not only produce theoretical studies but also carry out applied research us individual consumers. We got down to work in the spring of last year and we presented the late November. Professor Michal Mejstřík had a Czech Science Foundation grant for his “Ins Responses to Financial Market Failures” project and decided to give part of the money to t Other participants joined in afterwards. Who exactly is behind the project? Professor Michal Mejstřík is the supervisor of the project and I am its manager. Other par our postgraduate students Jana Chvalkovská and Petr Janský, both of whom had already worke corruption, and a bachelor’s student Kryštof Krotil. Has any similar research been carried out in the Czech Republic? For most academics dealing with finance this topic is not worthy of a dissertation because it’s not “rocket science” and for practicing professionals it is too sophisticated. There ranking of companies offering consumer loans on the market yet. The People in Need organiz some activity in this field but their Ethical Loan Index compared only 8 companies while w 34. That is not to say that no one is concerned with consumer loans. Our colleagues from the C Bank, colleagues from The Center for Economic Research and Graduate Education of Charles U well as colleagues from our institute are dealing with them. However they are looking at t perspective, that means they are mainly interested in how many loans do not get repaid or correlation with the economic cycle is. But people are more interested in the way consumer provides them and what legislative rules apply to them. We felt this microeconomic perspec on the market. What was the intention behind the project? The outcomes of the Safe Loan Navigator should primarily improve people’ orientation in th consumer loans and help them tell the safe providers from the unsafe (predator) lenders. T intention is based on long-term sustainability, that is regular updating and improvement o along with generating other credit-related topics. For example, the compulsory registratio credit providers with a financial arbiter by the end of 2011 will produce other valuable p jigsaw puzzle of consumer financing in the Czech Republic. Who is the navigator intended for primarily? There are three main target groups. Besides the clients of the credit companies it is our working on theoretical studies rather than applied research which would help to tackle rea The third target group are journalists who can make use of 48 pages of more general inform the study might have an educative meaning. What is safe debt? The construction of the navigator corresponds to the definition of safe credit which we ha many experts in the field of consumer credit. According to the Navigator, safe loan is suc the three following criteria from the applicant’s point of view: the applicant knows the t for example the annual percentage rate or the overall amount paid, they know the quality o provider and finally they understand the consequences of repaying or not repaying the cred loan will affect their household budget. How was the Safe Loan Navigator constructed? In all we examined 50 consumer loans from 34 providers, 13 of them banks and 6 non-bank co 15 so-called predators. Each creditor had a chance to verify the partial results. Only a f did so but an overwhelming majority of the safe providers did. Let me also point out that predators are only a sample of the companies and individuals whom we identified on the int them at the recommendation of consumer watchdogs. According to expert estimates there are tens of thousands of them operating on the Czech market. Based on the above mentioned safe loan parameters (with weights of 40%, 40% and 20%) we se whose weighted mean determined the final ranking in the Navigator. The financial instituti on the example of a 30,000-crown loan with a one year maturity and a 100,000-crown loan wi of five years. If the institution received 5–10 points, it ranked among the safe ones; a r points meant it was ranked among the credit predators. What did the results of the study reveal? It is alarming that the results of the Navigator revealed a so-called grey zone, that is p with a more lenient of practically no regulation – none of them received more than 3 point rests mainly in their lack of transparency (providing of information or the lack thereof a signing of the credit agreement), in high prices, excessive penalties in case of default a mechanisms (signing of a blank bill, securing a low loan with an incomparably more valuabl etc.). It is true, though, that safe creditors will not lend money to certain clients beca creditworthiness and therefore predators remain their only option. How do you see the future of household debt in the Czech Republic? Irresponsible debt and excessive debt of households is a pressing problem in our country a growing number of personal bankruptcies and foreclosures. In this connection let me use an Egyptian mythology features the snake Ouroboros which devours its own tail. In the short t itself but over time this will lead to its death. Irresponsible debt is similar. In the sh irresponsible borrower will increase their current consumption thanks to the debt but over repayment of credit may result in their personal bankruptcy or their end and subsequently less cheerful period of their life. I sincerely hope that the number of such Ouroboroses w the Czech Republic and that our Safe Loan Navigator will contribute to that. PhDr. Petr Teplý, Ph.D. [ URL "http://ies.fsv.cuni.cz/cs/staff/teply"] , is a graduate of and New Zealand. During his research he has co-authored more than 90 studies and 10 books.