In line with the EU’s Consumer Agenda 2021-2025, which aims to make consumers actors in the post-Covid-19 recovery, the European Commission proposed, on Wednesday 30 June, to revise the 2008 Directive on credit agreements to adapt it to the digital age, ensure better protection for consumers made vulnerable by the crisis and guarantee harmonised conditions for credit companies.
The Directive on credit agreements for consumers (2008/48/EC) aimed to promote informed consumer choice in an integrated credit market through clear, understandable and comparable information, but only covered loans between €200 and €75,000 (see EUROPE 9581/8).
It has become obsolete “when there is more and more online credit, sometimes with a heavy impact on the financial situation of consumers. For small credits, we want more security for consumers. We also want to limit usury rates of 100% or even 200%, which are prohibitive”, the Commissioner for Justice, Didier Reynders said at a press conference.
The Commission proposes that the Directive be extended to a range of products, including small, risky loans under €200, loans offered by crowdlending platforms (online financing that connects individuals) and ‘buy now and pay later’ products.
It also proposes to cap interest rates and the total cost of credit.
According to the Commission, credit information will have to be presented in a clear way, adapted to digital devices, so that consumers understand what they are signing up for. “Financial institutions should not hide behind complicated legal jargon”, commented Commission Vice-President for Values and Transparency, Věra Jourová.
There are also stricter rules on assessing the creditworthiness of borrowers.
Financial education of consumers, especially vulnerable consumers, completes the package. “It is also in the interest of the lending institutions to recover their funds”, Mr Reynders said .
According to him, “it is important to promote and organise the single market for consumer credit. The cross-border dimension is rare today, but digitalisation could accelerate this change”.
BEUC delighted. The European Consumer Organisation (BEUC) welcomed the ambition of this proposal, which is in line with its expectations. “Today, getting into debt is a matter of a couple of clicks. The internet is rife with ‘short-term high-cost credit’ and ‘buy-now-pay-later’ schemes, with consumers often unaware of the potential financial consequences.
Covid-19 has accelerated these trends, with many people turning to credit to make ends meet and increasingly shopping online. These plans will bring much-needed extra safeguards for consumers relying on these products”, said BEUC Director General, Monique Goyens, (Original version in French by Aminata Niang)