Premature repayment of fixed interest mortgage loans without compensation, a case of misguided consumer protection in the EU

Abstract Consumer protection shifts risks from consumers to businesses. This raises marginal costs and equilibrium prices. It is justified when markets are not strong enough allocate contractual or accident efficiently, especially in cases of severe asymmetric information between suppliers consumers. can then increase the consumer’s expected welfare a contract. We test these considerations theoretical empirical study on consumers' right early repayment mortgage loans without damage compensation creditor European Union. show formal model that such lead an impairment consumer welfare, compared with traditional rule expectation damages for breach applies if risk averse repays loan high interest rate low period take up new same project at lower interests. From point view, this has no solid economic underpinning, it restricted personal hardship serves insurance purpose. present evidence supporting argument. In panel monthly rates 23 EU Member States 2005 2017 we how spreads change level protection.