​​​Consumer Credit Directive: simplify, reduce and adapt to digital​

Updated: October 2019

PROPOSED SOLUTIONS AND ACTIONS 

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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

BACKGROUND