Negotiators from the European Parliament and the EU Council reached a provisional political agreement in the early hours of Friday 2 December on the new Directive on credit agreements in the digital age, which updates and repeals the outdated consumer credit Directive 2008/48/EC.
Proposed in June 2021, this legislation aims to update the rules to take account of the increasing digitalisation of a market where new operators and risky online credits have emerged, to prevent over-indebtedness of consumers and to create an internal market for credit through harmonised conditions for credit companies.
An effort to reach a compromise resulted in the successful conclusion of the third session of interinstitutional negotiations (trilogue) (see EUROPE 13052/11).
“Consumers can easily apply for credit online, but might not always be well-informed on the consequences of this application. They need to be able to know what they sign up for and how much they eventually have to repay. This agreement will ensure that citizens have sufficient and clear information about their credit agreements”, commented Jozef Síkela, the Czech Minister of Industry and Trade, on behalf of the Presidency-in-Office of the EU Council.
“In this time of economic crisis, we have prepared legislation that will really protect consumers in the field of consumer credit. For the first time in history, we managed to enforce the guarantee of the right to be forgotten for cancer patients in EU legislation”, said the chief negotiator for Parliament, Kateřina Konečná (The Left, Czech) (see EUROPE 12991/11).
Scope. Under the provisional agreement, the new rules will now also apply to certain risky loans, such as loans under €200, loans offered by participatory credit service platforms, ‘buy now, pay later’ products which were not covered by the 2008 Directive.
The new rules will ensure that the cost is limited, through measures such as caps on the interest rate, the annual percentage rate of charge or the total cost of credit.
Pre-contractual information. Before signing a credit agreement, the lender must ensure that consumers have easy access to all necessary information and that they are informed of the total cost of credit.
Creditworthiness assessment. Before entering into a credit agreement, the lender will be required to carry out a thorough assessment to check that the consumer seeking a loan is capable of repaying it - this is to avoid irresponsible lending and over-indebtedness. If the credit assessment is negative, the lender will not be able to make the credit available to the borrower.
In addition, cancer survivors who apply for credit for which insurance is required will have the right to forget after a certain period of time so that their former illness does not affect insurance rates.
Right of withdrawal. Member States will have to ensure that consumers have the right to withdraw from a credit agreement within 14 days without having to give reasons. Consumers will be entitled to early repayment and a reduction in the total cost of their credit. The pre-contractual information should clearly state how this compensation will be calculated.
Advertising. Any advertisement for credit agreements should always contain a clear and prominent warning that borrowing money costs money. And certain practices will be prohibited: advertising must not encourage consumers to seek credit by suggesting that it would improve their financial situation, that credit leads to an increase in financial resources, that it is a substitute for savings or that it can increase the consumer’s standard of living.
Sanctions. Harmonised sanctions are foreseen without mentioning their amount.
In addition, non-bank creditors and credit intermediaries (with the exception of micro-enterprises and SMEs) will be subject to an admission procedure and to registration and supervision by independent national authorities.
The European Commission welcomed the agreement. According to Didier Reynders, “the new rules will help increase consumer confidence and promote responsible practices, both online and offline”.
The provisional agreement must be endorsed by the EU Council and Parliament before the new Directive can be formally adopted. (Original version in French by Aminata Niang)