WIREDGOV

The Council yesterday agreed its position (‘general approach’) on the revision of the consumer credit directive. The revised directive repeals and replaces the current 2008 directive on credit agreements.

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

As a result, the revision of the consumer credit directive modernises and reinforces consumer protection at European level when subscribing to such credit. In particular, the directive aims to promote responsible and transparent practices of all the actors involved in consumer credit, for example by ensuring that information on credits 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 regulates the assessment whether or not a consumer will be able to repay their credit.

Types of loans excluded from the scope

The Commission proposal significantly broadens the scope of products that will need to comply with stricter credit rules, including small 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, considering that the directive's framework is not adapted to them. It excludes direct crowdfunding, given that the provisions do not cover all aspects of this type of funding, in particular the protection of lending consumers. Under certain conditions, it also excludes deferred payment as well as deferred debit cards, which are more in line with payment habits. Rental or leasing contracts without an obligation or option to buy the property are also excluded in the Council’s text. 

Optional partial derogation

For certain of the less risky credit products that now also fall within the scope of the directive, the Council’s mandate suggests an optional partial derogation from certain provisions. These proportionate rules adapt 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
• contracts with a maximum period of three months and negligible costs

Clearer information before signing a contract

To allow consumers to compare credit offers quickly, the Council’s mandate proposes to merge the pre-contractual information forms that are presented to consumers. In addition, in order to increase the readability, the text requires that the essential information should be presented on the first page of such forms.

Other changes

Other changes made by the Council aim to provide greater legal certainty and include clarifications on the creditworthiness assessment, defining a maximum time limit of the right of withdrawal, the obligation to protect consumers from excessive rates, clarifications of the admission procedure, and penalties.

Background

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.

Next steps

The general approach reached yesterday 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.

• Council general approach – directive on consumer credits repealing and replacing the Consumer Credit Directive
• European Commission – directive on consumer credits repealing and replacing the Consumer Credit Directive

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