Questions and answers on consumer credit
What is consumer credit?
Credit is an umbrella term that covers a range of financial services such as bank loans and credit cards. Consumer credit is a type of credit used to purchase products and services, such as a car or a package holiday, without having to pay the full amount at once. This means that you commit to paying it back at a later date in the future, usually with added interest. Consumer credit can be useful when employed wisely but it is not without its risks, so make sure you’re prepared and aware of your rights .
Does the protection offered by the Consumer Credit Directive apply to the credit agreement I am interested in?
The Consumer Credit Directive applies to most credit agreements with a value between EUR 200 and EUR 75 000. The Directive does NOT apply to agreements that are:
- secured by a mortgage;
- concluded for the purchase of land or immovable property;
- leasing or hiring agreements where there is no obligation to purchase;
- granted free of interest, without other charges or in the form of an overdraft facility to be repaid within 1 month;
- the result of a judicial ruling;
- linked to the deposit of an item as security of a debt; and
- linked to loans granted to a limited group of the public.
How is the EU looking out for consumers who want to take out credit?
The EU provides consumers with key rights that will help them to be fully prepared when making credit decisions and protect them if something goes wrong.
These rights are guaranteed under the Consumer Credit Directive (CCD) which has been implemented in the national legislation of the Member States.
Thanks to the Directive, you will be protected by a ‘safety net’ of rights wherever you are in the EU. Three of the key rights provided by the CCD are:
- The right to pre-contractual information in a standardised format (the Standard European Consumer Credit Information [SECCI] form).
- The right to withdraw from a credit agreement within 14 days of signing.
- The right to repay early.
The complete list of consumer credit rights can be found in the Consumer Credit Directive.
What is the Consumer Credit Directive?
The Consumer Credit Directive (CCD) is a piece of legislation, adopted at EU level and transposed into national legislation, which gives European consumers rights when taking out credit agreements. This enhanced protection aims to inform consumers of their rights when seeking credit and thereby encourage consumers to make informed decisions and shop around.
Why has the EU introduced the Consumer Credit Directive (CCD)?
Financial services in general can be very complex for consumers to understand. As a result it can be difficult to understand consumer credit agreements and to compare offers. Consumers may often end up with agreements unsuited to their needs. Please note that a Member State may decide to extend the protection afforded by the Consumer Credit Directive to other forms of credit.
What information am I entitled to receive before I sign a credit agreement?
Before you sign a credit agreement, keep in mind that the credit provider is obliged to provide you with key information in good time. This information must be provided in a clear, standardised format called the Standard European Consumer Credit Information form. Receiving the same form from each credit provider will allow you to easily compare offers and choose the best credit offer for you.
Is advertising from credit providers reliable?
Advertising that shows the interest rate or any other figure related to the cost of the credit must contain information to help you compare different offers and shop around for the best deal.
This should include a representative example, giving you a clear and balanced indication of the nature and costs of the credit.
What if I change my mind about a credit agreement I’ve already signed?
You can withdraw from a credit agreement without explanation within 14 days of signing. You’ll just have to pay back the credit provider the money you borrowed plus interest due till withdrawal and cover any non-refundable charges already paid by the credit provider.
Am I entitled to make early repayments?
Yes. You’ll have to financially compensate the credit provider for some of their lost income but the compensation cannot exceed the total amount of interest the creditor has lost.
I know my three key rights, but what other rights does the Consumer Credit Directive provide me with?
- The right to transparent credit advertising.
- The right to key information, presented in a clear manner, in the contract.
- The right to the have the contract drawn up on paper and to receive a copy.
- The right to have your creditworthiness assessed.
- The right to be informed if your request for credit is rejected on the basis of existing information in a creditworthiness database, unless this is prohibited by legislation.
- The right to be informed about any changes to the borrowing rate.
- The right to terminate an open-ended credit agreement.
- The right to be informed about the assignment of rights to third parties and not to be put in a worse position because of this.
- The right to be informed if you overrun your credit limit and to be told of any associated costs.
- Certain rights to receive information when dealing with a credit intermediary.
Read more on all your rights outlined in the Consumer Credit Directive.
What is the Consumer Credit campaign and what does it aim at?
In order to ensure that EU citizens know about their rights when taking out credit, the European Commission launched an awareness-raising campaign. The campaign’s purpose is to highlight and promote key credit rights, as foreseen in the Consumer Credit Directive. The campaign has already taken place in Cyprus, Ireland, Malta and Spain and is currently running in Austria and the Czech Republic.