Information and consumer credit in Central and Eastern Europe

We present a critique of Behavioral Economics, the dominant approach to reforming the regulation of retail credit, and propose a new approach to managing uncertainty in consumer lending. This new approach draws on a different model of decision-making, Distributed Cognition, to improve contract origination, and it takes inspiration from the Legal Theory of Finance with respect to contract enforcement. We develop a set of stylized arguments about information-related problems and their possible solutions in Central and East European markets, discussing separately measures to protect lenders, such as requiring collateral, collection, screening and data sharing, and those to protect consumers, including disclosure, data privacy and regulation of automated individual decisions. Then we move to enforcement and using the empirical case of the Hungarian foreign exchange mortgage crisis we illustrate the importance of elasticity of law.