Conceptualising Unconscionability in the Context of Risky Financial Transactions: How to Converge Public and Private Law Approaches?
In M. Kenny, J. Devenney & L. Fox O’Mahony (eds), UNCONSCIONABILITY IN EUROPEAN PRIVATE FINANCIAL TRANSACTIONS: PROTECTING THE VULNERABLE, pp. 246-274, Cambridge: Cambridge University Press, 2010
30 Pages Posted: 29 Sep 2010 Last revised: 20 May 2017
Date Written: September 28, 2010
While financial services are essential for the everyday life of EU citizens and for the EU economy at large, some of them entail very high risks which may particularly affect the vulnerable in financial transactions. Thus, for example, the provision of investment services by the bank may lead to huge financial losses beyond the client’s ability to pay. Similarly, the provision of a business loan to one family member on the condition that another family member stands as a surety for the whole debt may result in financial ruin for the latter. The information asymmetry and huge risks involved in some financial transactions give rise to the question of how and to what extent the vulnerable must be protected (against themselves). At present one can trace several contract-related methods of protecting the vulnerable against unconscionable financial transactions, some of which even going beyond private law. On the one hand, the influence of public law can be seen in the recourse to fundamental rights with a view to rebalancing contract law (e.g. the Bürgschaft case in Germany) and in the adoption of the financial supervision legislation in some areas containing extensive duties of care on the part of financial service providers. On the other hand, contract law itself has developed concepts which protect the vulnerable against unconscionable financial transactions. This contribution critically analyses these methods and a possible interplay between them. It is argued that recourse to fundamental rights cannot effectively resolve the problem of contractual unfairness. What is needed is a further development of contract law concepts of unconscionability taking into account the contract-related rules in the financial supervision laws and, possibly, even the integration of the two. Special attention in this respect must be paid to the role of the vulnerable at the (pre-) contractual stage.
Keywords: Unconscionability, Financial Services, Financial Transactions, Fundamental Rights, Financial Supervision, PELSC, CFR, MiFID
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