The EU Competitiveness Council today reached agreement on a new Consumer Credit Directive.
“This agreement delivers clear practical advantages to Europe’s consumers. For example, in the future it will be possible to make genuine comparisons among credit offers throughout Europe. Credit providers will be subject to uniform transparency rules, and the annual percentage rate of charge for credit will be calculated in accordance with uniform standards,” stated Federal Minister of Justice Brigitte Zypries in Brussels.
The aim of the Directive is to improve consumer protection throughout Europe by enhancing transparency.
To a substantial extent, the new Directive adheres to the principle of full harmonisation; in other words, it contains conclusive stipulations for Member State legislation. In the future, overdrafts and so-called “renovation credits” (which are different from credits secured by real estate or credits for the purchase of land parcels or buildings) will also be included in the Directive in order to avoid distorting competition between different forms of credit.
The Directive’s essential provisions address the following areas:
- Advertising: credit providers who advertise a particular interest rate must furnish additional information on the credit conditions (maximum amount, fees, annual percentage rate of charge);
- Pre-contractual information: before consumers conclude a credit agreement, they must receive an information sheet – which is to be uniform throughout the EU – containing essential information on the credit (“Standard European Consumer Credit Information”);
- The information that must be included in credit agreements;
- Right of withdrawal: up to now, only Germany and a few other Member States have provided consumers with the right to withdraw from a credit agreement within 14 days. In the future, this right of withdrawal will apply throughout the EU.
- Early repayment: the draft Directive limits the early repayment penalty that credit providers can demand in cases where consumers repay their credit earlier than initially agreed.
- A uniform method for calculating the annual percentage rate of charge.
The new Consumer Credit Directive will serve both to deepen the European internal market and strengthen consumer protection. For example, the Standard European Consumer Credit Information will help citizens to shop for inexpensive offers throughout the EU, even if they are not fully proficient in a particular language. The provisions on pre-contractual and contractual information as well as on the calculation of the annual percentage rate of charge are designed to eliminate dubious practices that serve to conceal actual credit costs – for example, when ostensibly inexpensive credit is combined with overpriced payment protection insurance. In the new version of the Directive, the amount of such insurance payments must be included in the cost of credit.
“Of course, most consumers will enter credit agreements with nearby banks, or at least banks in their own country. However, this Directive will make it easier for the growing proportion of mobile citizens and users of internet banking services to identify opportunities beyond the borders of their national credit markets. We purchase products from around the world as a matter of course. Why shouldn’t the credit for these purchases come from another Member State of the European Union? Now banks face the challenge of gaining the necessary trust of consumers in other Member States,” Ms. Zypries added.
The Directive must still be approved by the European Parliament. After its adoption, the Directive must be transposed into the national law of the Member States within two years.
