Overhaul of Consumer Credit Regulation

Mark RobertsPartner, Leman Solicitors

The European Consumer Credit Directive (CCD) is due an overhaul, and the European Commission is consulting on proposed changes.

The CCD harmonised the core aspects of consumer credit regulation across the EEA from 2010. It has been reviewed by the European Commission twice, in 2012 and 2020. As a result of this year’s review, the Commission has consulted on certain changes (summarised below) as part of a wider consultation on consumer issues. An overhaul is particularly necessary because the CCD is a ‘maximum harmonisation’ directive, so member states are unable to impose different or additional requirements in the areas covered (except to the extent expressly permitted). You have until 6 October 2020 to respond.

Conclusions from 2020 review

This year, the Commission found that the CCD is: 

  • too narrow in scope; 
  • doesn’t reflect the use of new digital devices; 
  • requires information that is too complex for consumers; 
  • is too vague on assessing creditworthiness and the types of data that can be used for that purpose; and 
  • doesn’t deal with hardship and forbearance in the event of ‘exceptional and systemic economic disruption’, such as that caused by COVID19.

Changes to the CCD being considered:

Potential changes to the CCD being consulted on by the Commission (which may already reflect regulation outside its scope in some member states) are listed below:

1. Extending the scope of the CCD to include:

  • credit below €200;
  • credit above €75,000 (for purposes other than the renovation of a residential immovable property); 
  • loans obtained by individuals from other individuals, through online platforms (peer-to-peer (P2P) lending); and
  • potentially any of the many forms of credit currently exempt (there’s a long list in article 2 of the CCD).

2. Improving the format, content and timing for the provision of key information to enable consumers to understand the deal being offered and compare it with competing products. 

3. Improving the display of information in advertising in the various different media and devices.

4. Improving rules on responsible lending and borrowing through such measures as:

  • binding principles on responsible lending (e.g. an obligation to take into account target consumers’ interests, objectives and characteristics when designing credit products);      
  • preventing excessive cost of credit through caps on interest rates;
  • banning unsolicited credit offers;
  • protecting consumers in case of unsolicited credit offers (e.g. a reminder of the existing right of withdrawal);
  • banning online credit purchasing without enough time for reflection (e.g. credit obtained “in one-click”);
  • harmonising the creditworthiness assessment process across Member States;
  • banning the provision of credit to consumers with a negative creditworthiness assessment;
  • restricting the provision of credit to consumers with negative creditworthiness assessments (e.g. requiring the provision of debt advice or grace periods for late repayments);
  • banning mandatory purchase of additional products (e.g. payment protection insurance) as a precondition of credit (“tying”);
  • requiring credit providers to promote financial education.

5. Creating common standards on the data and methodology for creditworthiness assessments and/or the categories of data collected and used for creditworthiness assessment purposes; as well as enabling the exchange of that data across Member States’ borders.

6. Creating new measures to safeguard the interests of lenders and borrowers in situations of exceptional and systemic economic disruption, such as:

  • specific rules allowing member states to suspend payment obligations, with a minimum level of consumer protection for those cases;
  • encouraging creditors to exercise reasonable forbearance (e.g. temporarily postpone capital or interest payments of a loan) when a borrower is experiencing, or is likely to experience, financial difficulty;
  • embedding flexibility in the prudential Icapital adequacy) framework for banks, to facilitate lending to support consumers and businesses in the crisis period;
  • new obligations for member states to strengthen support services for over-indebted consumers struggling to repay their debt in the crisis, or at risk of poverty (e.g. through debt advice); and
  • new obligations for creditors to provide education and awareness on debt management for consumers in financial difficulties.

The consultation is open until 6 October 2020.{

An overhaul is particularly necessary because the CCD is a ‘maximum harmonisation’ directive, so member states are unable to impose different or additional requirements in the areas covered (except to the extent expressly permitted).