The European Parliament‘s (EP) Internal Market and Consumer Protection Committee almost unanimously approved on Tuesday (July 12) the new EU rules that, according to lawmakers, “aim at protecting consumers online from credit card debt, overdrafts and loans that are unsuitable for their financial situation.”
The new rules are part of the revision of the Consumer Credit Directive (CDD) which, after more than 14 years since it was first adopted in 2008, regulators considered wasn’t fit for its original purpose anymore. Following the rise in digital lenders and the increasing online distribution of consumer credit, the European Commission proposed a revision of the CCD in June 2021. The Commission’s proposal aims to address these technological developments by expanding its scope, introducing pricing rules for some credits, clarifying information requirements and revising creditworthiness assessments.
The recent approval by the EP’s Committee paved the way for the start of the interinstitutional negotiations between the Parliament, the Council and the European Commission, most likely after the summer recess. But even though the approval at the committee level was almost unanimous, the road for the text to become law may require further discussions. Not only did the parliament committee take longer than expected to approve its position regarding the proposed text, the approval was expected on June 15, but also the public positions of Parliament and Council differ on some points and ironing out the differences may require several rounds of negotiations.
Read More: New EU Consumer Credit Rules May Be Approved by Summer
The EP didn’t add many changes to its original position, but it introduced further requirements to assess the creditworthiness of people taking out a loan before it is granted. For instance, companies should require information from the consumer about his or her obligations and cost of living expenses. Companies could use information from non-banking lenders, telecommunication providers and utilities, but they will be prevented from using social media and health data for the assessment.
To protect consumers, the EP also proposes rules requiring companies to offer “clear, concise and standardized credit information” easily readable on digital devices. Some other proposals may still need further clarification. For example, the parliament committee wants new rules on credit advertising that don’t incite over-indebted consumers to take credit that “suggest that success or social achievement can be acquired thanks to credit arrangements.”
One area that is grabbing lawmakers’ attention is overdraft facilities and credit overrunning. The parliament committee wants to regulate these products to increase consumer protection, and this may be subject to further discussions in the trialogue negotiations. The proposed CDD left wide discretion to member states to regulate prices or caps on consumer loans. Some previous drafts of the proposal included caps on interest rates, APRs and the total cost of the credit agreements, but the final proposal left the decision about the level of caps to member states. The latest comments from Parliament suggest that lawmakers may want to introduce new rules at the EU level to impose certain limits, which would then take power from member states.
Read More: EU Council’s Amendments to Consumer Credit Bill Favor BNPL Providers
The EU Council’s position is mainly aligned with the text proposed by the European Commission, but some of the amendments introduced sought to provide more flexibility to loan providers.
The council wants to exclude certain products from the scope of the directive, like crowdfunding and deferred payments like debit cards. It also suggested an “optional partial derogation” for other products like loans of less than 200 euros, credit in the form of an overdraft facility 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.
The EP and council seem to have slightly different positions in the amount of information required for certain types of loans and the scope of the directive. While the overall positions of both institutions are close to each other and there aren’t major disagreements, the road to the final approval of the CDD may still require further negotiations.
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