The situation in France is pretty unique in these times of crisis. Here is how credit is structured and how French people see it and use it.
CREDIT IN FRANCE
What is the credit situation in France and how do French people see the credit?
Well, as a matter of fact granting of credit in France has always been strict. Actually it’s already been like this for years. In France, when you say “credit”, it means that you apply for a loan for your house, a simple vanilla loan, nothing exotic, no
second mortgage, no derivative on your increasing equity.
It’s never been simple to get a loan in France. You need to be qualified, sometimes even overqualified.
The only other loan that a French person would apply for is a small loan for the car. And that’s it. Period.
Now that being said, the facts: in France, out of all issued cards, 95% are debit cards, 5% credit cards.
French people are literally scared of credit and for good reasons, certainly related to the country’s laws. Punishment for delinquencies is severe.
Attempts to sell credit products in France have typically failed. A few years ago, ZeBank (then called EGG, now called Oney) tried to sell a credit program to French people offering “points” or cash-back. It was a total failure. They approached the French
market like the UK market. Consumer protection agencies in France turned against Egg and the leading French banks were only too happy to be ‘on the side’ of the consumer protection agencies. Most recently though, Credit Agricole for example, has been offering
a hybrid card account wherein the cardholder can choose to use the card as a debit card or a credit card.
One has to know that in France, it is very easy to be listed on one of the files of “Banque de France”.
You can easily be FCC or FICP. When you are FCC, you are not authorized to use checks or cards. When you are FICP you are not authorized to get a loan. It usually lasts 5 years.
France has almost no under-qualified borrowers being granted credit. Even quality ones sometimes have a hard time being granted a loan.
To sum up, the credit situation in France is certainly one of the cleanest of the world.
CRISIS IN FRANCE
In times of crisis, you can usually see some typical behaviors:
- Less people in the shops
- People buy cheaper items or less items
- They usually go only for the essential
- Mid-class/Upper-class shops are empty
Basically everybody is paying attention to what they are paying for. They only buy what they need. And when they buy, they really want something that’s worth the money.
Well… The situation is not really like this right now in France. I live in Paris and travel a lot for business and I am in a really good position to analyze the situation.
- Malls are full of people buying (galleries Lafayette, Printemps…)
- People are buying the same things as before
- Restaurants are also full
- And it’s even harder than before to get a loan.
THE BEHAVIOR OF FRENCH COMPANIES DURING THIS GLOBAL CRISIS
Like all the countries that are hit by the crisis, French companies are:
- Asking for bailout money
- Firing employees “because” of the crisis
- In other words they are trying to “clean” the mess
Fortunately not all the companies in France do this, but some are taking advantage of the situation to leverage on their position.
When you travel a little bit and see what the situation is really like in other countries, you get a feeling of unfairness. Of course some companies certainly had some risky positions via financial instruments outside of the country, but when a business
makes a risky investment in exchange of a good ROI, then it should not be surprised and should just blame itself for being greedy when the wind does not blow in the right direction…
Much like in the U.S, there are a number of French companies which did not expose themselves to sub-prime. Granted that the French consumers have always been disciplined with very strict credit for years, it’s not fair to bail-out French companies that
took these risky positions while there are enough French companies that can continue on because they have not exposed themselves to the same risks.