Experian Briefing European Consumer Credit Directive (CCD) posted 16 June 2008
What is it?
On 7 April 2008 the European Council approved the CCD establishing common rules on consumer credit across Europe. The final text was signed by Council and Parliament on 23 April.
The Directive aims to guarantee a high level of consumer protection and to harmonise certain aspects of laws, regulations and administrative provisions of the 27 Member States concerning unsecured consumer credit.
The Directive will cover personal loans of between EUR 200 and EUR 75 000 repayable after more than a month. It will not apply to mortgages or to deferred debit cards. A separate White Paper is currently looking to regulate the former but it is not certain that this will become a Directive.
This is a key part of the European Commission's drive for a single European Market.
Member States now have 2 years to bring the Directive into local law - May 2010.
Impacts
The Directive places a significant burden on lenders to lend responsibly.
The Articles impacting on credit referencing are :
Article 8 - Obligation to assess the creditworthiness of the consumer
1. Member States shall ensure that, before the conclusion of the credit agreement, the creditor assesses the consumer's creditworthiness on the basis of sufficient information, where appropriate obtained from the consumer and, where necessary, on the basis of a consultation of the relevant database.
Member States whose legislation requires creditors to assess the creditworthiness of consumers on the basis of a consultation of the relevant database may retain this requirement.
2. Member States shall ensure that, if the parties agree to change the total amount of credit after the conclusion of the credit agreement, the creditor updates the financial information at his disposal concerning the consumer and assesses the consumer's creditworthiness before any significant increase in the total amount of credit.
Article 9 - Database access
1.Each Member State shall in the case of cross-border credit ensure access for creditors from other Member States to databases used in that Member State for assessing the creditworthiness of consumers. The conditions for access shall be non-discriminatory.
2. If the credit application is rejected on the basis of consultation of a database, the creditor shall inform the consumer immediately and without charge of the result of such consultation and of the particulars of the database consulted.
3. The information shall be provided unless the provision of such information is prohibited by other Community legislation or is contrary to objectives of public policy or public security.
4. This Article shall be without prejudice to the application of Directive 95/46/EC of the European Parliament and of the Council of 24 October 1995 on the protection of individuals with regard to the processing of personal data and on the free movement of such data (1).
How it impacts lenders
The main points are as follows:
- Pre-contractual and contractual information
The Directive standardises the information to be given in advertising relating to loans. This standardisation will enable the consumer to compare more easily the various offers on the European market.
It also obliges credit institutions to provide the consumer with exhaustive pre-contractual and contractual information using an approved format.
Before the conclusion of the credit contract, the creditor will have to verify the consumer's creditworthiness on the basis of information obtained from the consumer (Article 8 above) and, where necessary, on the basis of a consultation of appropriate databases accessible to all Member States (particularly in the case of cross-border credit).
Where a law laying down similar measures already exists in a Member State, that mechanism will be retained. In other cases, it must be put in place.
- Right of withdrawal
The consumer will have a period of fourteen calendar days in which to withdraw from a credit agreement without giving any reason. But this period may be reduced "at the explicit request of the consumer" to correspond to the specific period provided for in Member States' legislation. In addition, a provision clarifies the relationship between the right of withdrawal and other Directives.
- Early repayment
The new provisions give the consumer the right to early repayment of the credit and lay down rules for the calculation of compensation.
The creditor will be entitled to claim compensation provided the repayment falls within a period for which the borrowing rate is fixed, and where the reference interest rate at the date of the early repayment is less than that in force at the date of the conclusion of the credit agreement.
Compensation may not exceed 1% of the amount of credit repaid early (0.5% if the repayment is made within 12 months of the end of the credit agreement).
The Directive also specifies situations in which no compensation can be claimed, but the text also allows Member States to provide that the creditor may exceptionally claim higher compensation (for example where the credit institution can prove that the loss suffered from early repayment exceeds the basic maximum amount laid down in the Directive).
The harmonised method for calculating the loss is also specified in the text. The amount of compensation may not exceed the amount of interest the customer would have paid if the duration of the loan had not been reduced.
Every five years the Commission must undertake a review of the thresholds laid down and the percentages used to calculate the compensation payable in the event of early repayment.
- Indication of the annual percentage rate of charge
Creditors are obliged to specify the annual percentage rate of charge. Under Article 4 (information to be included in advertising) and Article 5 (pre-contractual information), the borrowing rate plus charges, together with the percentage rate of charge, must be specified (contractual information).
BERR confirm that the Directive was formally adopted on 22 May 2008 and is due to be implemented by Member States by 11 June 2010 - posted 15 June 2008
Formal adoption of the Consumer Credit Directive 22 May 2008
The Consumer Credit Directive has been published in the Official Journal (OJ) of the European Union. This means that it has now been formally adopted. The attached pdf is the official and final version.
Usually, Member States have two years and twenty days in which to implement EU legislation, which would in this instance, mean 11 June 2010. However the OJ specifies 12 May 2010 as the deadline. BERR, are currently investigating whether this is correct.
Consumer Credit Directive - final (pdf) »
Council of Ministers adopts the Directive - 7 April 2008
The Consumer Credit Directive moves one step closer as the Council of Ministers has now adopted the Consumer Credit Directive as amended by the European Parliament at Second Reading on 16 January 2008. There are a number of procedural steps before it is formally adopted. Once adopted, Member States will have two years and twenty days in which to implement it.
The Consumer Credit Directive has now been approved following the European Parliament vote in Strasbourg on 16 January 2008.
The Consumer Credit Directive (CCD) will be agreed in Council before mid 2008 and then hit EU members national legislation within 2 years from that date.
* Scope. The Directive will apply to credit above €200 and below €75,000 and it only covers credit contracts, not guarantors. It will only apply to loan contracts on which interest is paid, and not products such as deferred payment cards (charge cards) or mortgage credit;
* Advertising. The Directive sets out new requirements on standard information to be provided in advertising, which must include the borrowing rate and any charges included in the total cost of credit to the consumer, amongst other factors, by way of a representative example;
* Pre-contractual information and contractual information requirements. The Directive sets out new requirements specifying the list of items to be provided, including type and duration of credit, APR, borrowing rate, total amount of credit and charges included, amongst others. Pre-contractual information must be provided by means of a Standard European Consumer Credit Information (SECCI) form as set out in the Annex to the Directive. Overdrafts and certain other types of credit agreement are subject to more simplified provisions;
* Creditworthiness. The creditor shall assess the consumer’s creditworthiness on the basis of sufficient information, where appropriate obtained from the consumer, and where necessary on the basis of a database consultation. Before granting any significant increase in credit, the creditor should update the information at his disposal and assess the consumer’s creditworthiness. If a credit application is rejected on the basis of a database search, the creditor shall inform the consumer immediately and without charge of then result of the consultation and the particulars of the database consulted;
* Right of withdrawal. There shall be a 14 day period right of withdrawal during which consumers may withdraw from the contract without providing any reason. This may be reduced to three days in the case of linked credit agreements at the explicit request of the consumer (e.g. for the purchase of white goods where consumers want to take immediate delivery);
* Early repayment. The Directive gives the consumers the right to early repayment, while entitling the lender to ask for a compensation for possible costs, fairly and objectively justified, which are directly linked to the early repayment of credit. The Directive sets out the rules for calculating compensation, defines situations where compensation cannot be claimed and allows Member States to provide that a creditor may exceptionally claim a higher compensation;
* APR. A new standardised APR is introduced across the EU, based on a formula set out in the Annex to the Directive;
* Transposition. Member States must transpose the Directive into national law within 2 years of the Directive’s entry into force and a review will be undertaken 5 years after the Directive’s entry into force.
Disclaimer: The information contained on this webpage is provided for general guidance only. It is not intended to provide you with professional advice nor is it intended to substitute you obtaining professional advice.
