EU consumer protection directive needs revision to prevent financial instability, says Alior Bank chief

The European Union's 1993 directive on unfair consumer contract terms, designed for a bygone era, is now creating significant tension within the financial system, according to Piotr Żabski, president of Alior Bank.

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The EU's 1993 directive on unfair consumer contract terms needs revision. It was created for the realities of the 1990s and does not account for the impact of its consequences on the stability of the financial sector. Full consumer protection is possible only with complete stability.

Żabski argues that while the directive rightly protects consumers from unfair clauses, its current interpretation, particularly by the EU Court of Justice in Polish cases, overlooks the broader public interest: the stability of the entire financial sector. Court rulings that invalidate entire contracts or remove indexation clauses, without proper settlement mechanisms, have forced Polish banks to set aside nearly 100 billion in reserves. This directly impacts capital, liquidity, and the sector's ability to issue loans.

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Full consumer protection is possible only with complete stability.

Financial stability, Żabski emphasizes, is a public good. The directive's lack of a clear exception leads to a paradox where an individual consumer's interest can outweigh the collective interest of millions of savers and borrowers. He calls for a revision to introduce a principle of proportionality, ensuring that consumer protection does not destabilize financial institutions, as their failure ultimately harms consumers.

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This is not an academic dispute about commas. This is a real blow to capital, to liquidity, to the sector's ability to grant loans.

Furthermore, the directive's age is a concern. The financial market of the 1990s was vastly different from today's. Modern financial products require flexibility in contracts for banks to manage systemic risks such as currency, interest rates, and credit. Overly broad consumer protection, applied retroactively and detached from macroeconomic conditions, stifles innovation and increases the cost of credit for everyone. Żabski suggests incorporating a "financial system safety" clause into the directive, allowing courts and regulators to consider systemic consequences and opt for contract restructuring over mass invalidation.

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Financial stability is a public good of a higher order, protected both in EU law (e.g., through macroprudential mechanisms) and in national law.