View from Brussels - June 2023

20 June 2023

It took less than two years for the EU to reach informal agreement on a new Consumer Credit Directive (CCD) which, for those of us who lived through the last significant revision at the start of this century will testify, represents a speedy process. Although the UK has left the bloc, it’s interesting to see where Brussels has landed in the context of our own review of the Consumer Credit Act.

The provisional agreement widens the scope to loans below €100,000 though unsecured home renovation loans will be caught regardless of the amount borrowed. Whilst there are exemptions for certain deferred payment products and interest-free loans or those repayable within three months, the Directive specifies that buy-now-pay-later offered by third parties are captured. The text also sets out to ensure that large online retailers must conform to the new rules.

Many of the key provisions are prescriptive whether it’s the Dutch inspired warning that ‘borrowing costs money’, detailed creditworthiness assessment provisions (though with many similar features to the UK regime) or the possibility for national product intervention powers “in justified cases to withdraw credit products”. Similarly, EU Member States are mandated to introduced price restrictions to prevent consumers being charged “with excessively high interest rates” or APRs. However, the Commission’s initial draft and the early position of MEPs were even more interventionist. In the end, the more pragmatic view of national governments prevailed.

Lenders within the EU will need to fulfil conduct of business obligations – including the option for national bans on commissions from the creditor to the credit intermediary – and minimum knowledge and competence requirements for the staff of creditors and credit intermediaries. As a result of Covid, the new CCD requires Member States to ensure lenders offer ‘reasonable’ forbearance to customers in financial difficulty.

Formal agreement is expected by the end of this year with a two-year implementation period at national level with firms given a further year to meet the new requirements. Will the UK’s CCA reforms be in place by the end of 2026?  

Published 20 Jun 2023