EU Council’s Amendments to Consumer Credit Bill Favor BNPL Providers

EU regulation

The EU Council, one of the legislative bodies of the European Union, agreed on Thursday (June 9) on the revision of the consumer credit directive (CDD), paving the way for the interinstitutional negotiations that may start by the end of June. 

Ministers responsible for trade, economy, industry and innovation across Europe agreed on including several amendments to the original proposal submitted by the European Commission that may reduce transparency requirements for buy now pay later (BNPL) providers. 

The Commission’s CCD proposal aims to address technological developments in the consumer credit space by expanding its scope, introducing pricing rules for some credits, clarifying information requirements and revising creditworthiness assessments.

The existing CCD, first introduced in 2008, covers the vast majority of consumer loans, ranging in value from 200 euros to 75,000 euros. However, loans below 200 euros fall outside its scope. This means that many of the BNPL loans so widely used nowadays are not covered by existing rules. The proposed CCD seeks to change this situation by including BNPL schemes, payday loans, short-term overdrafts, interest-free credits and loans offered through crowd-lending platforms. 

CCD Exclusions

On Thursday, the EU Council proposed to exclude certain products from the scope of the directive. First, it excluded direct crowdfunding, given that the provisions do not cover all aspects of this type of funding, in particular the protection of lending consumers.

Second, under certain conditions, it also excluded deferred payments as well as deferred debit cards, which are more in line with payment habits. The Council defined deferred payment as “a commercial practice that allows the consumer to pay for goods or services in instalments, free of interest and without a third-party offering credit.” As BNPL services could also fit in this definition, and therefore benefit from the exclusion, the Council has specifically ruled out this possibility, saying that BNPL are included within the scope of the proposal. 

Nonetheless, the Council has suggested that some less risky credit products, which will likely include BNPL, could benefit from an “optional partial derogation.” These four products are: credit loans of less than 200 euros; credit in the form of an overdraft facility; credit agreement free of interest and any other charges, and contracts with a maximum period of three months and negligible costs. 

When these types of credit are involved, each member state would be able to opt for a regime that reduces pre-contractual information requirements and disclosure requirements and removes the provision on early repayment. This amendment seeks to reduce information overload for the consumer and bureaucratic overburdening for the creditor, the Council said.

Another amendment that may help creditors in general, including BNPL providers, is about the timing to provide the pre-contractual information. The original proposal suggested creditors had to send the pre-contractual information to the consumer “at least one day before” the conclusion of the agreement. The Council suggested providing the information “in good time” instead, providing more flexibility.

After adopting this position on the legal text with the proposed changes, the Council can start negotiations with the EU Parliament to reach a common agreement and pass the legislation. 

The EU Parliament will likely vote on June 15 or 16 on the proposed CCD at the committee level. This means that if the committee approves the text, a final vote in plenary session at the parliament could take place before the summer recess, most likely in the plenary session to be held in July. But for this to happen on time, parliament and EU council need to iron out their small differences before giving their final stamps of approval 

Read more: New EU Consumer Credit Rules May Be Approved by Summer