“The system carries with it the risk of escalation.”
A conversation with Alexander Maly, Vienna’s most senior debt counsellor, about banks gone wild and impulsive spending.
It’s an inconspicuous house in Vienna’s third district, close to the motorway, where people who find themselves in over their head with debt get help and advice. Thirty years ago, Alexander Maly, a social worker, started to build a counselling centre for highly indebted people. Shortly before his retirement, he explained why anyone can end up needing debt counselling services and how much the banks are to blame for Austria’s high indebtedness.
Bertolt Brecht once asked, “What’s breaking into a bank compared to founding a bank?” Do you understand what he meant?
Yes, I do indeed, particularly when banks have significantly changed their business models. In post-war Austria, banks were mostly organised on a cooperative basis or state-owned. They did not necessarily have to generate the highest possible returns. That changed in the early 1980s when banks were converted into public limited companies and had to deliver gains for their shareholders. It resulted in negative competition. Even bank staff said, “I don’t want to give a loan to this or that client, but if I don’t, they’ll get if from our competitor.” The credit sector had become a market gone really wild.
What is the situation today?
Better. But unfortunately it’s not because credit institutions have become more sensible, but only because of the big economic crisis in 2007-2008. Since then, banks have stopped extending huge loans to very financially weak people. But I remember people who had been unemployed for a long time who were still getting a loan of €30,000. Back then it was easy to fall into over-indebtedness: you overdrew your account for a while, until you were unable to pay your bills. Then the bank encouraged you to take out a debt-restructuring loan to cover your account, pay the bills and finance your new living room furniture on top of it. That is usually how people built up debt. They staggered from one restructuring scheme to the next until there were no options left.
For the most part, it’s unnecessary spending that ultimately brings people to see us.
Alexander Maly is a trained social worker who used to work for the youth welfare office in Vienna, where he started to build a service centre for debtors in 1988. He was the managing director of the Schuldnerberatung debt counselling services for many years and retired in April after having spent thirty years assisting people in debt.
Photo: © ASB Schuldnerberatungen / Nikola Milatovic
What makes people get into debt?
For the most part, it’s unnecessary spending that ultimately brings people to see us. Some people feel such a strong desire to make their wishes come true as quickly as possible that they are unable to think about tomorrow. Then there’s a second group of people who are indebted but manage to juggle things around for a while. However, if something unexpected happens, like a divorce or the birth of a child, their system comes crashing down. In addition, there’s compensatory pressure to overspend – someone who believes owning a big car will move them up the social hierarchy, for instance. Migrants often feel pressure from what is expected of them in their home country. That’s why they drive home in a brand-new car filled with gifts bought on credit just because they don’t want to feel ashamed.
So there are many migrants among your clients?
About 60 per cent of the people who come to us don’t speak German as their mother tongue. It’s relatively clear why: it was impossible to incur consumer debt in the countries where they are from. They could run into debt, but they couldn’t get a loan without collateral, such as property.
That’s easier in Austria?
Yes. When we start counselling, we always ask our clients where the money has gone. They tell us they used it to pay for a baptism or a wedding or new furniture. Banks provided consumer credit thirty years ago too, even though they knew it wouldn’t work. A construction worker would get a huge loan to pay for his daughter’s wedding knowing that the money would be gone right away and he would very likely be out of work soon.
Is that when people seek debt counselling advice?
The people who come to see us are usually already being threatened with legal action. On average, our clients have run up debts of approximately €40,000 per capita. And the number of clients keeps growing. Each month we have 600 or so new registrations in Vienna alone. In Austria as a whole there are approximately 700,000 requests for attachment of earnings orders. These figures show that something has gone terribly wrong.
What exactly has gone wrong with the system, in your opinion?
Debt takes on a momentum of its own. I have often seen somebody’s earnings seized by the bank, which means that this person pays money back to the bank each month, but the debt is increasing all the same. Because the accumulation of interest that the bank charges is higher than the amount taken out of their wage. That was completely legal. The system carries with it the risk of escalation.
How did households manage to get into so much debt?
The sin was committed in 1986 with the introduction of the Drittschuldneranfrage [“external inquiry”] for all creditors. Anyone who wants to attach earnings in Germany must tell the court, upon filing the application, which employer the attachment of earnings order is to be directed to. In Austria, a request to attach earnings is granted anonymously and the court identifies, on behalf of the creditor, which company the debtor works for. Until 1986 this was a privilege granted only to maintenance creditors. After this privilege was given to everyone, banks were usually the first to attach earnings. Since they knew they were able to seize earnings at any time, they started to become increasingly negligent when selling their loans. This was when Postsparkasse [Austrian Postal Savings Bank] launched its well-known advertising slogan, Anna, den Kredit hamma! (which roughly translates to “Joan, we got the loan!”). This slogan put the paradigm shift in the credit sector in a nutshell. Banks started to flood private households with money. Yet it only takes one unexpected event, and then the instalments can no longer be paid and the bank comes knocking at the door. Under Austrian law, the first creditor to present an approved attachment of earnings order to the debtor’s employer comes first. Banks are usually the fastest. In response to this, Austrian lawmakers have introduced – in addition to the standard minimum subsistence level – a reduced minimum subsistence level for maintenance claims. It is 25 per cent below the “normal” subsistence level.
What are people left with to live on?
Based on an average net income of €1,500, you are left with approximately €1,100 if your earnings are attached by a bank. In the case of a maintenance claim, it’s only about €800. That is below the guaranteed minimum income. We have therefore been requesting for a long time that maintenance claims automatically be satisfied first. This is standard practice in other countries.
How did you end up a debt advisor?
I used to work as a social worker at the youth welfare office. My supervisor there was very open to new ideas, and my job taught me that debt can cause huge problems. That’s why we started setting up a debt counselling centre from the youth welfare office.
Who were your first clients?
My colleagues at the youth welfare office got me my first clients right in our office lunch room. Because if parents are on the edge of a financial precipice, it also has a negative impact on family harmony.
How much has the debt counselling centre’s client base changed in these thirty years?
Initially, we did not have any old people who sought advice. Today, however, people who are 70 or 80 years old come to see us.
How do 80-year-olds end up needing debt counselling services?
In most cases, these people have been dragging their debt along with them for decades. Two weeks ago, a client got in touch with me who first came here in 1991. He has a stable income now because he is retired, and we’re making a fresh attempt to get rid of his debt. Recently, I had an 87-year-old man whose firm had gone bankrupt. He might not live to see the day when he is free of debt. But people’s desire to get rid of their debt is very strong.
How difficult is it to get out of debt?
It’s possible, but it takes a long time. When we started offering our services, people who had fallen into a debt trap were having their wages garnished for the rest of their lives and didn’t stand a chance. Things got better after 1995 with the introduction of personal bankruptcy, despite massive resistance from creditors. You commit to pay a certain amount of money each month for five to seven years, after which you are free of debt. Under the amendment to Austrian insolvency law, the minimum insolvency quota for personal bankruptcy was abolished last year. That was a step in the right direction. We will have to get used to the fact that people who are poorly educated and poorly paid, or small business owners, can slip into debt and be faced with insolvency proceedings. This will become the norm, just as we know that, on average, new drivers crash their car within the first three or four years.
In some social classes, a lowered BMW is simply an important status symbol for an 18-year-old guy.
Doesn’t it make debt advisors angry when people waste their money on nothing and end up losing everything?
No. In some social classes, a lowered BMW is simply an important status symbol for an 18-year-old guy. It does make me angry, though, that there are banks that help that fool buy such a car. When I’m dealing with someone who is deeply in debt after having already been bankrupt once before, I first think to myself, “You idiot!” But then I think that it always takes two idiots: a client who hasn’t acted very cleverly, but, more importantly, a bank that knows that person has already been bankrupt and still offers them another loan.
Is there a typical debtor?
No. Basically anyone can end up in this situation if they are a bit clumsy. During the course of the thirty years that I have been dealing with these issues, there has never been one classic mistake that led to debt. It is always a number of small steps in the wrong direction. Our society just offers too many options for going into debt. That’s the problem.
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