Implementation briefing to go – Consumer Credit Directive
The European Commission has in recent years been working on revising the 2008 Consumer Credit Directive as part of its commitment to promoting European democracy. The revision is aimed at addressing consumer protection in the digital transition and safeguard vulnerable consumers from excessive debt. The current directive, established in 2008, harmonizes EU regulations on consumer credit for personal consumption, including loans, overdrafts, and credit cards. However, it does not cover mortgage-backed credit arrangements (regulated by Directive 2014/17/EU) or credit for property or land acquisition. The directive outlines rules for credit advertising, pre-contractual information, contract terms, and consumer rights, such as the 14-day withdrawal period and early repayment options. On June 30, 2021, the commission proposed a new Directive since they assessed that the current directive needed to be revised. The proposal extends the scope of the Consumer Credit Directive to include crowdfunding. It introduces new provisions relating to creditor obligations, tying, and bundling practices, ancillary services, advisory services, unsolicited credit sales, conduct of business obligations, and staff requirements. The legislative file was referred to the Committee on the Internal Market and Consumer Protection (IMCO) in the European Parliament, and the Rapporteur’s report was adopted at the first reading in plenary on September 5, 2022. The report recommended modifying the directive’s scope to cover credit agreements of up to €150,000, with individual Member States’ national authorities determining the upper limit based on economic conditions. The proposed changes excluded leasing agreements without an obligation to purchase and deferred debit cards under certain conditions. Additionally, some information requirements were removed for credit agreements below €200. The report emphasized that credit advertising should include a clear warning about the cost of borrowing and discouraging excessive indebtedness. It also called for upfront, visible, and attractive presentation of standardized information, as well as a post-agreement message reminding consumers of their right to withdraw. The report further suggested that the European Banking Authority (EBA) develop guidelines for creditworthiness assessment and product governance. On June 9, 2022, the Council announced its adoption of a general approach that supports the revision of the Consumer Credit Directive to enhance consumer protection and promote responsible and transparent practices. The Council particularly emphasizes clear and understandable presentation of credit information suitable for digital devices. The Council proposes excluding direct crowdfunding due to incomplete coverage by existing provisions. It also suggests excluding deferred payment, deferred debit cards, and rental or leasing contracts without an obligation or option to buy the property. For less risky contracts, the Council proposes optional partial derogations to adapt requirements to specific products, including credit loans below €200 and three-month overdraft facilities. Additionally, the Council aimed to improve legal certainty, clarify creditworthiness assessment, establish a maximum time limit for exercising the right of withdrawal, protect consumers from excessively high rates, and define admission procedures and penalties. On December 2, 2022, the Council and Parliament reached a provisional agreement on revising the Consumer Credit Directive. The co-legislators agreed to modernize and enhance consumer protection at the EU level for credit applicants. Under the agreement, lenders must provide consumers with easy access to all necessary information, including the total cost of credit, prior to signing an agreement. Creditors are also required to assess a consumer’s creditworthiness. Furthermore, the revised credit rules will extend to certain excluded risky loans, including those below €200 and loans offered through crowdfunding platforms. The revision also involves updating creditworthiness assessment rules, with negative credit assessments preventing the conclusion of a consumer credit agreement. The agreed-upon text was approved in the IMCO Committee on May 22, 2023, and a plenary vote is tentatively scheduled for the September session.
Noteworthy provisions in the provisional agreement text
(15c) Buy Now Pay Later schemes whereby the creditor grants a consumer a credit agreement for the exclusive purpose of purchasing goods or services provided by a supplier, which are new digital financial tools that let consumers make purchases and pay them off over time, are often credit granted free of interest and without any other charges, and should therefore be included in the scope of application of this Directive (15d) Certain provisions of this Directive should apply to natural and legal persons (credit intermediaries) who, in the course of their trade, business or profession, for remuneration, present or offer credit agreements to consumers, assist consumers by undertaking preparatory work in respect of credit agreements or conclude credit agreements with consumers on behalf of the creditor. (24) Information to consumers, such as adequate explanations, pre-contractual information, general information and information on consultation of databases, should be provided free of charge. Special attention should be given to the needs of persons with disabilities. (40) As highlighted in the Commission Proposal for a Regulation laying down harmonized rules on artificial intelligence (Artificial Intelligence Act)1, artificial intelligence (AI) systems can be easily deployed in multiple sectors of the economy and society, including cross border, and can circulate throughout the Union. In this context, creditors, credit intermediaries, when personalising the price of their offers for specific consumers or specific categories of consumer based on automated decision-making, should clearly inform consumers that the price presented to them is personalised on the basis of automated processing of personal data including inferred data, so that they can take into account the potential risks in their purchasing decision.
Next steps and application modalities
The provisional agreement between the European Parliament and the Council will be first approved by the leading IMCO committee and adopted by the European Parliament in plenary, presumably in the September 2023 session.
Member States shall adopt and publish, by a date no later than 24 months from the date the Directive is adopted, the laws, regulations and administrative provisions necessary to comply with this Directive. They shall forthwith communicate to the Commission the text of those provisions. They shall apply those measures from no later than twelve months from the transposition deadline. The Directive shall enter into force on the twentieth day following its publication in the Official Journal of the European Union.