UPDATE: Trade Associations Express Cautious Optimism About New EU Consumer Credit Agreement

December 8, 2022
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Following the EU’s negotiations on new consumer credit rules, key Brussels lobbyists have welcomed the news but urge caution.

Following the EU’s negotiations on new consumer credit rules, key Brussels lobbyists have welcomed the news but urge caution.

As reported by VIXIO, an agreement has now been reached by the European Council and European Parliament, meaning that the revised Consumer Credit Directive should be edging closer to the single rulebook.

Now, only procedural issues stand in its way, and it is likely that the agreement will pass as it now stands.

It includes new rules on credit worthiness assessments, as well as buy now, pay later (BNPL) products.

Speaking with VIXIO, Richard Knubben, director general of Eurofinas and Leaseurope, said that he welcomed the provisional agreement.

“It is aimed at further enhancing consumer protection while taking into account the new digital realities.

“It’s important to ensure a proper level playing field is established for all consumer finance providers, where efficient implementation thereof at member state level will be key,” he said.

Unfortunately, he noted, it is impossible to make an in-depth assessment “as full details are still lacking regarding the agreement”.

Meanwhile, a spokesperson for the Association of Credit Card Issuers Europe (ACCIE) told us that it “is pleased regulation is catching up to recent innovations in the credit market and better reflecting modern loans”.

“Maintaining a level regulatory playing field with new players on the market is of utmost importance.”

The organisation said that it welcomes the optional exclusion of deferred debit cards, which it regards as a reflection of the nature of this payment method and the lower risk of overindebtedness that it presents to consumers.

For example, the ACCIE argued that the available amount of credit for each month using a deferred debit card is dependent on repayment of the debt, such as if the consumer does not pay back the balance of the earlier month, this amount is not released for the following month. Additionally, there are generally stiff fees on unpaid balances, encouraging timely payment of the balance.

ACCIE’s spokesperson stressed the importance of maintaining a proportionate approach to the creditworthiness assessment.

“Not only will this be better suited to protecting consumers against overindebtedness without requiring unnecessary processing of their private data, but it will also ensure that costs of processing are kept at a level that permits credit card issuers to continue offering a wide range of protections and services to consumers.”

Regarding the cost of credit, ACCIE said that although it acknowledges the importance of implementing caps, any legislation should provide guidance on the adequate level of such caps to avoid consumers’ access to low-value loans, such as credit cards, being compromised.

“While reducing the cost of credit for consumers is important, the quality of services the consumer receives through the credit product should also be considered,” the trade association said.

Original Story: BNPL Targeted As EU Agrees New Credit Rules (December 6, 2022)

Negotiators from the Council and the European Parliament have reached a provisional agreement on the Consumer Credit Directive. The revised legislation repeals and replaces the current 2008 directive on consumer credit agreements.

The revision is intended to modernise and enhance protections for European consumers when they apply for credit, EU lawmakers have agreed on new rules that account for new forms of online credit, including Buy Now, Pay Later (BNPL) and short term, high cost loan schemes.

“Consumers can easily apply for credit online but might not always be well-informed on the consequences of this application,” said Jozef Síkela, Czech minister for industry and trade, in a statement following the agreement.

Síkela, who is also an investment banker and consultant, stated that consumers need to be able to know what they sign up for and how much they eventually have to repay. “This agreement will ensure that citizens have sufficient and clear information about their credit agreements.”

The amended directive 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.

To keep up with the trend of digitalisation, the new credit rules will now also apply to certain risky loans that are excluded from the scope of the directive currently in force. This includes loans below €200, loans offered through crowd-lending platforms and BNPL products.

Work such as this has already been taking place in some EU member states. Ireland was a first mover, and Denmark too has begun to set up tougher oversight of BNPL and online loans.

Beyond the EU, countries including the UK, New Zealand and Australia have also begun taking legislative steps in this field. Singapore’s regulator has also worked alongside local market players to create a voluntary code.

The new rules at EU level mean that going forward, before signing a credit agreement, the lender must make sure that consumers have easy access to all necessary information and that they are informed about the total cost of the credit.

On top of that, lenders must assess a consumer's creditworthiness, where they should assess if someone is able to repay their credit, with the new requirements hoping to protect consumers from irresponsible lending practices that could lead to over-indebtedness.

For example, when a creditworthiness assessment is negative, a creditor cannot make the credit available to the consumer. This will protect consumers from receiving credit that they are not able to repay.

Member states will also have to ensure that consumers have the right to withdraw from a credit agreement without any reason within 14 days, and consumers will have the right to early repayment and to reduce the total cost of their credit, with pre-contractual information clearly specifying how this compensation can be calculated.

Non-bank creditors and credit intermediaries - except micro enterprises and small businesses - will be subject to an admission process, and registration and supervision by national independent authorities.

Meanwhile, negotiators from the European Parliament secured a provision in the agreement so that credit advertising should always contain a clear and prominent warning that borrowing money costs money.

MEPs also succeeded in including measures, such as caps, 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.

At the insistence of MEPs, forbearance measures, in order to deal proactively with emerging credit risk at an early stage, will be obligatory. Creditors will be required to assist consumers in case of difficulties with repayment and impose charges no higher than necessary to compensate for costs resulting from a default.

Commenting on the agreement, Kateřina Konečná, one of the parliament’s negotiators, said “in this time of economic crisis, we have prepared legislation that will really protect consumers in the field of consumer credit.”

The provisional agreement that has been reached is now subject to approval by the Council and the European Parliament.

From the Council’s side, the provisional political agreement is subject to approval by member states' representatives before going through the formal steps of the adoption procedure.

In the parliament, the provisional political agreement reached by the negotiating team will now have to be approved first by the Internal Market and Consumer Protection Committee (IMCO), and then by a plenary vote.

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