This summer might prove significant for improving the financial well-being of European consumers. On 30 June 2021 the EU Commission presented its long-awaited Proposal for a Directive on Consumer Credits, a key piece of legal instrument in the area of financial consumer law.
Overall, the proposal does seem to suggest an overhaul of the current consumer credit regime. The proposed scope of the new directive is much wider and far-reaching than the current 2008/48/EC Directive on Credit agreements for consumers (Consumer Credit Directive). The structure and content of the proposed directive resemble more to Directive 2014/17/EU on credit agreements for consumers relating to residential immovable property (Mortgage Credit Directive) than to the current Consumer Credit Directive.
We could highlight the following major improvements:
Article 2 significantly broadens the scope of the new Directive, which would apply to small loans below 200EUR, to loans provided by crowdfunding platforms, and to the increasingly popular 'buy now pay later' credit products.
Article 14 regulated tying and bundling practices, prohibiting the former.
Article 17 bans unsolicited credit sales.
Article 18 introduces a stricter consumer-centric creditworthiness assessment. It now bans lending to consumers where the creditworthiness assessments end with a negative result. Where the assessment involves automated data processing or profiling, consumers will have a right to demand human intervention to review the machine's decision.
Article 31 requires the Member States to introduce or maintain price caps. The Proposal requires caps on the interest rate, the annual percentage rate of charge, and/or the 'total cost of credit to the consumer'.
Article 32 introduced conduct of business requirements for the staff of financial firms to act honestly, fairly, transparently, and professionally and take account of the rights and interests of the consumers when they create or sell credit products or when the credit contracts are enforced.
Article 34 requires the Member States to promote financial education, especially in relation to responsible borrowing and debt management.
Article 35 requires the Member States that creditors have adequate policies and procedures in place to reasonable forbearance (such as loan extensions or payment deferrals) before enforcement proceedings are initiated when consumers find themselves in financial difficulties.
Even the above short summary signals that the proposal is much more in line with the times that we live in than the present Consumer Credit Directive. Focusing on the need to enable consumers to make informed decisions, and disregarding modern financial products such as high-cost short-term loans and those brought about with the rapid development of technology such as products provided by crowdfunding platforms.
BEUC welcomed the Proposal, emphasizing that it came just at the right time to prevent further predatory lending practices by high-cost short-term credit providers and to address consumers' financial difficulties created by the current coronavirus pandemic.
The Proposal is a result of a long and thorough process; fitness check of the Consumer Credit Directive, stakeholder consultation, use of expertise, and impact assessment. There was a clear and sustained focus around some problematic areas of the Consumer Credit Directive such as its deficiency in the provision of responsible lending. However, some issues have been left out from the process of evaluation, such as the need to carve out the meaning of the 'total cost of credit for consumers' currently in Article 3(g) which was
recently shaped by the CJEU. Thus, there may be more work to do in polishing the proposal. Everyone involved in the EU's complex legislative process should take the opportunity to re-evaluate the Proposal's coverage and reach, to make it as good and protective as possible for European consumers.
