Harmonised EU consumer credit rules one step closer

The European Parliament and Council are entering another round of tough negotiations on a much disputed directive on consumer credit, after a Parliament committee voted for some major changes to the draft.

The Parliament’s committee on internal market and consumer protection (IMCO) passed some 236 amendments to the proposed directive in a vote on 10 December.

Key changes include the scope of the directive, advertising, pre-contractual and contractual information and early repayment terms, which have been the main bone of contention in negotiations among member states (EURACTIV 22/05/07).

The new rules will harmonise the €800 billion consumer credit market, allowing consumers to enjoy the same rights and information standards, as well as compare offers across the EU. The rules will apply to consumer loans between €200 and €50,000, as opposed to the Council’s preferred upper limit of €100,000. 

One of the main objectives of the directive is to protect consumers against taking on too much debt. In order to prevent this, the information given by the lender must allow the borrower to make a responsible decision and the lender must also assess the solvency of the borrower.

Under the rules agreed in the committee, lenders will be expected to provide information on the benefits as well as the drawbacks of the loan offered to the consumer. Moreover, the information to accompany the signing of the contract will make it easier to calculate and compare the total cost of loans by using an annual percentage rate of charge (APR) as a basis for calculations. Similarly, definitions for overdraft facilities will be standardised, but the Parliament committee adopted a text that is less strict than that adopted by the Council on contractual and pre-contractual information requirements for overdrafts.

The directive also gives consumers the right to pay off their loans early and sets out rules on the calculation of compensation payments to the lender in this case. The compensation needs to be justified, in line with national rules and should not go beyond the interest charges the consumer would have normally paid. Moreover, a right of cancellation within 14 days is to apply to all member states.

Consumer credit rates currently range from 6% in Finland to 12% in Portugal. However, few European consumers are likely to reap the benefits of harmonised rules, as consumer credit remains a local business, with less than 1% of transactions currently carried out across borders.

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