Consumer Credit Directive:
simplify, reduce and adapt to digital
Updated: October 2019
PROPOSED SOLUTIONS AND ACTIONS
Simplification of information
Consumer credit is normally partially executed through the granting of a handful of small operations to
consumers. Those operations are of limited complexity and small amounts, but are, in turn, regulated by
considerably complex rules.
As an example of that, the CCD requires creditors to give excessively detailed information to the consumer
prior to entering a consumer credit agreement. Nonetheless, consumers ignore information which is too
complex or difficult to remember and there is evidence that simpler information with fewer figures is much
more effective at landing critical messages. That information may refer to information that only reflects the
specifics of the product and meets with client’s expectations for short and clear information – for example –
the repayment periods, the amount of the repayment instalments and the applicable interest rate.
Reduction of information
Regarding the pre-contractual information, it is important to focus on diminishing the number of
pre-contractual documents, which banks are obliged to serve to consumers in any case. This approach
has not proved itself to be useful for consumers and for that reason the requirements for serving
pre-contractual information and Standard European Consumer Credit Information aren’t helping in achieving
the objectives of the Directive. Bearing digitalisation in mind, the required information can barely be
presented in a clear and comprehensive way on mobile devices.
The reduction of information may be also observed through the role of the right of withdrawal. The right of
withdrawal is an instrument for the consumer’s protection and when it is granted to the consumer it should
diminish some of the requirements for the service providers, especially in the field of the pre-contractual
information that needs to be provided to consumers. If the amount of information is not diminished,
there is not a substantial meaning of the right of withdrawal.
Regulate activities rather than institutions
In ESBG’s opinion, gold plating practices in the implementation of the CCD by Member States have limited
its effectiveness. Unregulated entities can take advantage of the consumer trust that regulated entities have
gained through the years, and even put that trust at risk if they fail to deliver fair and transparent results,
increasing regulated entities’ reputational risk. Therefore, a strict implementation of the CCD by all Member
States would give consumers better visibility on their level of protection in Europe. In this sense, the CCD
should regulate that consumer credit activity should be a reserved activity and should require the
application of policies on responsible lending, transparency and customer protection.
Creditworthiness assessment requirements should be flexible and preserved for each Member State
and each credit institution
In our view an effective creditworthiness assessment can’t be standardised, because of the following nonexhaustive reasons:
- it should be based on the knowledge of the borrower and on the ability to take into account the
specificities of his situation, not on a mechanically applied criterion. This knowledge - inherent to the
banker's job - can’t be standardised.
- standardising the assessment of risk profile would block the market without taking into consideration
the peculiarities of each Member State.
- it also may lead to a legal risk of not being able to deny credit if the European criteria are met.
- common indicators wouldn’t allow to take into consideration the economic and cultural background:
the same indicators will not necessarily mean the same in different countries (e.g.: savings habits, national
rates of divorce, cost of education for children).
IDENTIFIED CONCERNS
The CCD evaluation has so far looked at the relationship between the needs and problems in society and
the objectives of the Directive.
However, more importantly for us is the impact that digitalisation has had on consumer credit. The emergence
of a variety of new technologies has commanded the development of the digital transformation in the
commercial and corporate aspects of banking. It is easy to observe a significant upward trend in the budget
share dedicated to R&D.
However, the CCD did not anticipate that
technological disruption, and new digital means
have brought a diverse set of innovative
distribution channels, and along with them, new
communication means, new ways to access
credit and the uniformity of credit agreements.
The use of smartphones, tablets, computers,
headsets, and other devices, for not only
searching products, but also for entering into
credit agreements, is a reflection of the reality that
has exceeded the expectations considered by the
legislators when agreeing the CCD.
In this regard, special attention needs to be paid
to the information to be provided to consumers
before entering into the credit agreement. In some
Member States, particular attention must be paid
to the actual conclusion of the credit agreement
when using these devices. Art. 10 para 1, in which
the text form of credit agreements is standardised
as sufficient, should be harmonised to a maximum in the future, in order to enable a digital conclusion.
At present, many Member States have adopted stricter rules (e.g. written form), representing a real barrier for
the single market. In our view, in order to adjust the already adopted measures to the new digital technologies
it is necessary to assess how much detailed information is required and how it can best be provided to
consumers.
We have noticed that new market players such as crowdfunding platforms or SMS loan-providers have not
yet played such a major role in the area of consumer loans. Nevertheless, we see a tendency for this role to
increase in the future and for considerable changes to be expected in consumer loans as well.
WHY POLICYMAKERS SHOULD ACT
We fully support the principles of the CCD, but we
believe that it is reasonable to measure the
objectives of the Directive having in mind that:
- consumers want to receive clear and
manageable information in a short time.
- it is important not to overburden the consumers
with information.
- its requirements should be suitable for new
technology and distribution channels.
- a clear balance should be created between the
objectives of the Directive and the rights of the
creditors.
BACKGROUND
The EU Consumer Credit Directive (CCD) is designed to strengthen consumer rights and help potential
customers make an informed choice when signing up to a credit agreement. Lenders provide standardised
information on the product, allowing clear comparison by the consumer with other products available to them.
In addition, lenders provide detailed information on the annual percentage rate of change; including the total
cost of the credit.
The EU CCD was finalised in 2008. In 2011, an annex was added to clarify the rules on calculating the Annual
Percentage Rate of Charge (APR). Finally, in 2014 a report was published in the Implementation of the directive.
In January 2019, the European Commission launched a consultation on the evaluation of the CCD,
following on from an evaluation and fitness check roadmap from summer 2018. The review aims to assess the
effectiveness, efficiency, coherence, relevance and EU added value of the Consumer Credit Directive. It focused
on the progress made to date, costs and benefits in relation to different stakeholders and whether original
objectives and tools of the Directive have corresponded to current needs. It also monitored how the Directive
works together with other pieces of legislation and whether the EU intervention has delivered additional
added value.