Brussels, 12 July 2022
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Proper assessment of consumer’s creditworthiness
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Clear, concise and standardised credit information must be easily readable on digital devices
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Rules for advertising to reduce miss-selling to over-indebted consumers
The new EU rules aim at protecting consumers online from credit card debt, overdrafts and loans that are unsuitable for their financial situation.
In a text adopted by the Internal Market and Consumer Protection Committee, with 42 votes in favour, 1 against and 1 abstentions, MEPs say that legislation should cover credit agreements of up to €150,000, with the actual upper limit to be determined by the relevant national authorities based on the particular economic situation in a member state. Member states will also be able to apply limited changes to the obligations in the case of small value loans of up to €200, loans granted interest-free and without other charges, or loans that have to be repaid within three months and with minor charges
Creditworthiness assessment
MEPs introduced further requirements to assess the creditworthiness of people taking out a loan before it is granted, including requiring information on a consumer’s current obligations or cost of living expenses. In order to assess the creditworthiness of consumers with little or no credit history, other information can be taken into consideration, such as from non-banking lenders, telecommunication providers and utilities.
However, data from social media and health data should not be taken into account and the right to be forgotten should be respected.
MEPs also agreed that The European Banking Authority (EBA) should develop guidelines detailing how creditors and providers of crowdfunding credit services perform this creditworthiness assessment.
Clear consumer information
Consumers should always obtain standard information so they can compare different offers, and understand the legal and financial consequences of loans and credit costs. The information should be shown upfront and in a clear way. Consumers should be able to see all essential information at a glance, even on their phone.
They should also be reminded that they have the right to withdraw from the credit agreement or the agreement for the provision of crowdfunding credit services without giving any reason within a period of 14 calendar days.
Consumer protection
MEPs stressed that credit advertising should contain, in all cases, a clear and prominent warning that borrowing money costs money, and that it should not incite over-indebted consumers to seek credit or suggest that success or social achievement can be acquired thanks to credit agreements.
As overdraft facilities and credit overrunning are increasingly common forms of consumer credit, MEPs want to regulate these financial products in order to increase the level of consumer protection and avoid over-indebtedness.
Next steps
Parliament negotiators are ready for talks with the Council and the Commission on the final shape of the rules, following plenary’s green light.
Further information:
Consumer credit must be accessible, fairly assessed and without hidden costs
JULY 12, 2022
The Renew Europe Group in the European Parliament welcomes today’s adoption by the Committee on the Internal Market and Consumer Protection of the revision of the Consumer Credit Directive, bringing a number of important elements in, for the benefit of consumers.
Our political group has played a significant role in the negotiations by contributing to a balanced and fair EP position. Renew has introduced a dose of proportionality according to the nature, amount and risk of the credit, also the right to be forgotten and a one-year time limit to request the nullity of the contract, in case the customer wants to use the right of withdrawal.
Another key contribution from Renew Europe is the exclusion from the scope of this directive of deferred debit cards and leasing contracts with no obligation to purchase. Therefore, our group will seek to defend our position concerning the exemption, the need for a proportionate regime and adequate pre contractual information during the upcoming negotiations with the Council.
Renew Europe MEP, Stéphanie Yon-Courtin (Liste Renaissance, France), shadow rapporteur on the revision of the Credit Consumer Directive, said:
“The new rules will allow for more consumer protection in light of digital developments that took place in the last few years and the increased demand for consumer credits. This is a key area with disproportionate impact upon our most vulnerable citizens, so ensuring consumers’ adequate protection whilst supporting the competitiveness of legitimate credit providers is a moral as well as political imperative.
We reached a balanced position to ensure consumer protection while allowing development of the payment markets with consumer friendly products.”
European Parliament falls short in protecting consumers against risks of “free” credit
That is because Parliament’s IMCO Committee agreed to exempt leasing agreements and some interest-free credit products (e.g. Buy Now Pay Later) from the CCD, leaving consumers without protections such as cost caps or creditworthiness checks. These interest-free loans and leasing agreements are increasingly popular and are used to buy everything from smartphones to kitchens or cars but come with a similar risk of over-indebtedness as traditional consumer loans.1 In times of economic crisis, some consumers are even using them to buy food or to simply make ends meet.
BEUC Director General Monique Goyens said: “With the exemption of leasing agreements and interest-free credit from the CCD, consumer over-indebtedness is one click away. These credit products are now offered almost everywhere, be it to buy a new smartphone or kitchen appliance, to higher-value ones like cars or simply to make ends meet in the face of rising food and energy prices. Exempting these products is opening the door to abuse by Big Tech and large retailers. Without a sound creditworthiness assessment, these credit products will lead consumers into overspending and with it a spiral of debt, serious financial constraints.”
Next steps
The Parliament’s IMCO Committee’s opinion is final on this topic as there will be no vote in a plenary session of Parliament. This will now go to ‘trilogue’ discussions between the EU Parliament and Council to find agreement.
Background
- BEUC’s reaction to the Council position on the CCD.
- BEUC’s reaction to the Commission’s CCD proposal.
- Factsheet on Buy Now Pay Later.
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1 Our German member vzbv recently reported that consumers often complain that interest-free credit contains hidden costs, for instance in bundled insurance or bank accounts. Our French member UFC Que Choisir found that leasing agreements come with egregious costs, sometimes doubling the price compared to a traditional consumer loan.