Consumer Credit Directive

Definition

Consumer Credit Directive denotes Directive 2008/48/EC (European Union) on credit agreements for consumers which harmonises certain aspects of the laws, regulations and administrative provisions of the Member States concerning credit agreements for consumers.

Status

CCD has been reviewed recently with the following recommendations:

Issues and Challenges

Scope

The exclusions from Directive’s scope are significant and encompass certain widely used loans as well as loans that are documented to more easily lead to consumer detriment under certain circumstances, such as zero-interest loans, Payday Loans, leasing agreements that do not impose an obligation to purchase, or agreements with pawnshops.

Effectiveness

A high level of consumer protection and the emergence of a well-functioning internal market have both been partially achieved. The most effective provisions in the Directive relate to the provisions on the rights of withdrawal and Early Repayment and the provision regulating the Annual Percentage Rate of Charge.

• Although the provision on the Annual Percentage Rate of Charge existed already in the previous legislation on consumer credit, the Directive entirely harmonised the calculation of the Annual Percentage Rate of Charge by providing a coherent formula for its calculation across all Member States. The Directive thus provides for a common and comparable tool of high effectiveness and value added for consumers
• The consumer enjoys a period of 14 calendar days in which he can withdraw from the Credit Agreement without giving a reason. In addition, the early repayment clause entitles the consumer to fully or partially repay, at any time, the outstanding debt under a credit agreement.
• The Directive obliges the creditor to provide to the consumer, in good time before he/she is bound by any credit agreement or offer, with the information needed to compare different offers and take an informed decision whether to conclude a credit agreement. Such information is provided by means of the Standard European Consumer Credit Information Form which includes key details such as type of credit, Annual Percentage Rate of Charge, number and frequency of payments, and total amount owed.

On the other hand, provisions regarding the creditworthiness assessments and credit databases have not been fully effective.

The reasons why the Directive has been only partially effective stem both from the Directive itself (for instance, imprecise wording of particular articles) and from external factors, such as the practical application and enforcement in the Member States and from aspects of the consumer credit market not covered by the Directive.

Efficiency

The entry into force of the Directive has led to a number of initial and on-going costs (for instance, staff training and initial set up costs for private companies; monitoring, compliance and enforcement costs for public authorities). However, the main finding is that the principal benefit of the Directive, namely the reduction in consumer detriment, outweighs the costs.

Coherence

The Directive is generally coherent with and complementary to other EU-level consumer policy and legislation. While there are no major inconsistencies with other relevant EU-level legislation, further alignment or synergies with such legislation may help improve legal clarity for consumers and creditors. One such instance concerns the Creditworthiness assessment and the possible need for the Directive to align itself better with the Mortgage Credit Directive and General Data Protection Regulation respectively.

Relevance

The two main objectives of the Directive, namely achieving higher consumer protection standards and the emergence of a cross-border market, remain relevant. However, in order to sustain its relevance in the short and medium term, the Directive may need to cover the new emerging consumer habits and emerging market developments brought by digitalisation. This does not require changing the objectives themselves, but possibly an adaptation of some of the Directive’s provisions.

EU added value

The Directive’s added value lies in the creation of a high level of consumer protection across the EU and in the reduction of fragmentation of the EU regulatory framework through the introduction of certain harmonization articles (for instance, standardised information formats), thereby increasing consumer protection and reducing the barriers to the provision of

cross border credit.