EU Consumer Credit Directive Crosses Finish Line

September 14, 2023
Buy now, pay later and credit card agreements are set for tighter EU regulation, after members of the European Parliament held their final vote on the legislation.

Buy now, pay later (BNPL) and credit card agreements are set for tighter EU regulation, after members of the European Parliament (MEPs) held their final vote on the legislation.

The Consumer Credit Directive (CCD), which was already agreed between European Parliament and Council negotiators in December 2022, aims to make EU credit markets function smoothly while ensuring a high level of consumer protection. 

The legislation will cover credit agreements of up to €100,000, and was adopted with 608 votes in favour, eight votes against and 15 abstentions.

The directive will now enter into force on the 20th day after its publication in the Official Journal of the EU.

Member states will then have two years to adopt necessary laws and administrative provisions and three years to apply them.

What’s in the legislation?

Much has been said about a provision pushed by MEPs that will mean cancer patients have a "right to be forgotten" so that they will not be discriminated against in future insurance conditions. 

However, the CCD is vast and will apply to payment methods such as BNPL and credit card agreements. 

Under these new rules, for example, BNPL providers will be required to ensure that consumers have easy access to all necessary information about the credit and its total costs.

BNPL providers will also be required to assess their customers’ ability to repay what they borrow. 

“With this legislation, we want to make sure that recent developments on the credit market are taken into account, including digitalisation, new actors such as crowdfunding services or new products like BNPL," said Maria Manuel Leitão Marques, an MEP speaking on behalf of the centre-left Social and Democrats (S&D) faction.

“Our key objective is to protect consumers, and especially the most vulnerable ones, by reducing to the maximum their risk of over-indebtedness.

“Sometimes this happens due to the accumulation of several small credits, which become a big burden." 

The S&D took credit for tighter regulation of BNPL, saying that they fought for it despite opposition from the centre-right European People’s Party. 

"We managed to maintain ‘Buy Now Pay Later’ and small-value credits within the scope and make them subject to the obligations under the directive,” said Marques.

"BNPL credits are dangerous for consumers due to heavy late payments fees and a lack of creditworthiness assessment.”

The liberal wing of the European Parliament, Renew, also welcomed the passage of the directive.

“The new rules will allow for more consumer protection in light of digital developments that took place in the last few years and the increased demand for consumer credits,” said Stéphanie Yon-Courtin, MEP, on behalf of the faction. 

The French MEP continued to state that consumer credit is a key area in the EU, and has a disproportionate impact on vulnerable citizens.

“Ensuring consumers’ adequate protection whilst supporting the competitiveness of legitimate credit providers is a moral as well as political imperative,” she said.

“We reached a balanced position to ensure consumer protection while allowing development of the payment markets with consumer-friendly products.”

Industry sentiment

When approached for comment by Vixio, BNPL firm Klarna said: “We support BNPL regulation which protects consumers, not banks, and enables alternatives to high-cost credit within appropriate guardrails.”

Klarna also said that although these new EU rules protect consumers, they have allowed retailer-owned BNPL to remain unregulated. 

“National lawmakers now have an opportunity to close this loophole, while allowing all providers to find creative ways to inform consumers about their BNPL products, have the information they need before signing up to a credit product and protect consumers from unscrupulous, expensive traditional credit.

“Our message is simple: choice within appropriate guardrails is the best way to protect consumers.”

The CCD also means that non-bank creditors and credit intermediaries will be subject to an admission process, and registration and supervision by national regulators. 

Credit advertising, meanwhile, will need to contain a “clear and prominent warning” that borrowing money costs money.

MEPs succeeded in negotiations with the Council to include measures such as caps on charges, to prevent abuses and ensure that consumers cannot be charged excessive interest rates, annual rates, or charges on loans or the total cost of credit.

Member states will also need to ensure that consumers have the right to withdraw from a credit agreement without any reason within 14 days, and consumers have the right to early repayment and to reduce the total cost of their credit.

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