Council Confirms Position on New Rules for Consumer Credit

The Council of the European Union has agreed its position on the revision of the Consumer Credit Directive. The revised directive enhances protection at European level for consumers taking out such credit and repeals and replaces the current 2008 directive on consumer credit agreements.

Since 2008, the increasing digitalisation of the European economy has led to significant changes in the consumer credit market. It has led to the emergence of new products and new players offering credit through faster and simplified procedures, as well as to changes in the preferences of consumers; they are buying increasingly online, in particular following the recent COVID-19 crisis.

The revision of the consumer credit directive accordingly modernises and enhances protection at European level for consumers taking out such credit. In particular, it aims to promote responsible and transparent practices by all players involved in consumer credit, for example by ensuring that credit information is presented in a clear and understandable way, and is adapted to digital devices.

In addition, to protect consumers from irresponsible lending practices that could lead to over-indebtedness, the directive promotes financial education and debt advice, and lays down stricter rules for assessing whether or not a consumer will be able to repay their credit.

The Commission proposal significantly broadens the scope of products that will need to comply with stricter credit rules, for example by including loans below €200, loans offered through crowdfunding platforms and ‘buy-now-pay-later’ products.

However, the Council’s mandate proposes to exclude certain products from the scope, taking the view that the directive is not a suitable framework to deal with them. It thus excludes direct crowdfunding, given that the provisions do not make it possible to cover all aspects of this type of funding, in particular the protection of consumers as lenders. Under certain conditions, it also excludes deferred payment as well as deferred debit cards, which can be seen more as payment habits. Rental or leasing contracts where there is no obligation or option to buy the property are also excluded in the Council’s text.

For some of the credit products being added to the scope of the directive and deemed to be less risky, the Council’s mandate suggests an optional partial derogation from certain provisions. This proportionate regime thus adapts pre-contractual information, advertising requirements and early repayment provisions for the following products:

• Credit loans of less than €200

• Credit in the form of an overdraft facility (i.e. loaning more than you own) that has to be repaid within three months

• Credit agreements free of interest and any other charges

• Loan agreements with a maximum repayment term of three months and only insignificant charges

To allow consumers to compare credit offers quickly, the Council’s mandate proposes to merge the pre-contractual information forms that have to be presented to consumers. In addition, in order to make these easier to read, the text requires the key information to be presented on the first page.

Other changes made by the Council aim to improve legal certainty and include clarifications on the creditworthiness assessment, the definition of a maximum time limit to exercise the right of withdrawal, the obligation to protect consumers from excessively high rates, clarifications on the admission procedures, and penalties.

Together with the review of the general product safety regulation, the consumer credit directive is part of the new consumer agenda, launched in 2020, aiming to update the overall strategic framework of EU consumer policy.

The general approach reached today completes the negotiating position agreed by the Council. It provides the Council presidency with a mandate for further discussions with the European Parliament, as soon as the European Parliament adopts its position.

Source: Council of the European Union