A committee of the European Parliament will vote in June on the proposed Consumer Credit Directive (CCD) with a view to getting final approval in plenary session before the summer break. Lawmakers will discuss tomorrow, May 17, the proposed amendments to the text.
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 existing CCD is from 2008, and though it introduced a number of benefits for consumers, it doesn’t include many new lending initiatives broadly used by consumers such as buy now, pay later (BNPL), payday loans or short-term overdraft facilities.
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.
Regarding the scope of the proposal, the existing CCD covers the vast majority of consumer loans, ranging in value from EUR 200 to EUR 75,000. However, loans below EUR 200 fall outside its scope. This means that many of the BNPL loans that are so widely used nowadays are not covered by the 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.
Lawmakers have introduced an amendment to remove crowdfunding lending from the proposed CCD. However, they are still asking the European Commission to review whether these types of crowdfunding platforms require regulation, and if so, to propose a revision of this CCD in 2024.
Information requirements are also to be standardized in this proposal. To increase consumer awareness and to promote responsible lending practices, the proposal aims to streamline and reflect the growing importance of digital services in the pre-contractual phase. The proposal aims to improve the provisions of pre-contractual information by requiring lenders to focus more on the key information such as borrowing rates and costs, the annual percentage rate of charge (APR), and the total amount of credit. This information would be summarized in a Standard European Consumer Credit Information (SECCI) form, and the Parliament is amending the form to add information on missed payments and the right of withdrawal.
Also related to the information provided, the Parliament is proposing a ban on personalized advertisement and an obligation to only show standardized offers. Furthermore, the Parliament is also suggesting that member states should prohibit misleading advertising that underexposes the consequence of a loan and that might create over-indebtedness by focusing on the ease of obtaining a loan.
Perhaps an area that could have raised opposition from the industry is the regulation of prices or caps on consumer loans, but the proposed CCD still leaves wide discretion to member states to regulate this space. In the absence of EU-wide regulation for some loans, most member states have introduced interest rates or APR caps. Some drafts of the new proposal included caps on interest rates, APRs and total cost of the credit agreements, but the final proposal leaves the decision about the level of caps to member states. Countries will have the possibility, but not the obligation, to impose caps if they consider it adequate.
Creditworthiness assessment is another important area where the new CCD aims to harmonize the practices across member states. The new regulations will tighten the rules and require lenders for all loans to perform creditworthiness assessment. For instance, the Parliament and the Commission agree that data coming from social media should never be used in these assessments, and they propose a list of objective financial data that can be used for these purposes. Health data may also be subject to restrictions. The parliament proposes that data on the consumer’s health and medical situation or history with cancer should be prohibited to use.