Consumer credit: "Adoption of new Directive is big step forward" says Kuneva
Today European Consumer Affairs Commissioner Meglena Kuneva welcomed the adoption by the Council of Ministers of the Consumer Credit Directive, and of its five key elements: pre-contractual information, contractual information, annual percentage rate of charge, right of withdrawal and right of early repayment. Full harmonisation at EU level of national legislations is an important first step towards establishing the conditions for a genuine internal market in consumer credit, with a high level of consumer protection both at national and cross-border level.
Commissioner Meglena Kuneva said: "With this new Directive, consumers will enjoy a wider, clearer choice of consumer credit offers, together with a high level of protection. The consumer credit market remains largely fragmented into national markets, partly because of diverging legislation at national level. The new Directive on Consumer Credit is a big step forward. It will allow for consumers to conclude credit contracts more easily and more safely, with comparable high quality information throughout the EU – both in their own country and across their borders. Creditors will find it easier to sell directly across borders. Consumers will be able to make better informed choices out of a wider selection of offers."
The new Consumer Credit Directive
The Directive ensures that consumers receive, prior to the conclusion of a credit contract, the information they need to compare offers. This information (e.g interest rates, amount, number and frequency of payments, the obligation to take out insurance or the charges for defaulting) must be set out in a new comparable EU-wide European Credit Information Sheet, to be used by all creditors.
There will also be a single EU-wide method for calculating the Annual Percentage Rate of Charge (APR) so consumers can compare the price of different credit offers with a single figure – be it between the bank around the corner or across borders. The Directive also sets standards on the right of withdrawal so consumers can change their mind within 14 days. The right to repay early (already provided by the existing Directive) is maintained, with a newly added guarantee that consumers will not be charged excessive fees.
Key facts and figures
Consumer loans represent on average almost 18% of the gross income of retail banking in the EU. The cost of credit varies greatly across the EU from the lowest rate of less than 7% in Finland to almost 12% in Portugal. This figure shows that the internal market is not yet properly functioning in this sector, but that there are considerable potential benefits, for consumers and banks, in developing a cross-border market in this area.
The current rules
The current rules on consumer credit result from Directive 87/102. This Directive contains certain minimum requirements. Most Member States have gone beyond these requirements, but to a different extent, and essentially there is a patchwork of different rules across the 27 EU Member States.
The new Directive
The Directive on Consumer Credit ensures that consumers receive standard, comparable information on:
Pre-contractual information. For all credit offers, consumers will receive a single European Credit Information Sheet (to be used by all creditors at EU level). This sets out all essential information consumers need in a clear, standard way which will allow the consumer to compare easily the features of different bank offers, be they local or cross-border. The Commission has organised focus groups in all Member States who supported the idea of such a sheet almost unanimously. "[…] this would really be ideal, because you have everything together and you get well-informed", one of the groups concluded.
Annual Percentage Rate of Charge. The Directive establishes a EU wide method of calculation for the APR - a single figure, calculated in the same way across the EU with all the same costs and charges included. Consumers will - by comparing one single figure - be able to find out what is the cheapest credit offer.
Contractual information. Consumers will receive comprehensive information when they conclude the contract, so that they have a reference document describing their rights and their obligations. The Directive contains a detailed list of information requirements.
The Directive also sets out two essential rights for consumers:
Once they have concluded a credit contract, consumers will have 14 days to withdraw from the credit without having to give any reason, and without any charge.
In addition, the Consumer Credit Directive confirms the right to repay early at any time. Standards are set on the compensation creditors are entitled to claim in case of an early repayment, in order to lower market entry barriers.