The lender-borrower relationship: an application to the French consumer credit market.

Summary Outstanding consumer credit represents 7 or even 8% of a country's GDP. The regulatory framework for consumer credit has been profoundly modified by the European directive 2008/48/EC and by the law n°2010-737, known as the "Lagarde law". Our work therefore aims to answer the following question: what type of relationship exists between lenders and borrowers on the consumer credit market? Are these relationships specific? Three objectives are proposed, for each of them, we present an insight on the borrower's side and on the lender's side. The first, linked to regulatory changes, shows that information is at the heart of the relationship and that any change or evolution in information impacts the relationship. The second objective, more strategic, shows that taking into account behavioral biases (overconfidence and optimism biases) or the establishment of a lasting relationship between the lender and the borrower has an impact on lending decisions. The third objective, financial in nature, shows that the lender-borrower relationship leads to the determination of "optimal" debt paths for a household but also to the reduction of lender risk within the framework of portfolio theory. Both qualitative and quantitative methodology is used. We find that the equilibrium is of a mixing type and that the banking relationship only indirectly impacts this market. Taking into account biased borrower behavior leads to a less risky loan portfolio composition for the lender. The lender-borrower relationship is understood by analyzing the information sharing systems of the 27 European Union countries.