Consumer Credit Directive: EU Commission proposal for the further development of consumer credit law

Directive 2008/48/EC on credit agreements for consumers (hereinafter referred to as the "Consumer Credit Directive" or "Directive") has already been amended in 2011, 2014, 2016 and 2019. The aim of the Directive is to ensure a harmonized EU framework for consumer credit. This is intended to ensure a functioning internal market for consumer credit and a high level of consumer protection.

From Prof. Dr. Patrick RöslerProfessor of Banking Law at the Allensbach University

The evaluation of the directive has shown that high consumer protection standards have been introduced. However, there are still no uniform standards across the EU. The current wording of the directive is often too unclear. In addition, the Consumer Credit Directive must adapt to new products and advancing digitalization.

The Commission's preferred option for further implementing the objectives of the Consumer Credit Directive is to amend the Directive and include new provisions. A brief summary of the most important points:

Extension of the scope of application of the Consumer Credit Directive

In future, the directive should apply to loans of less than EUR 200 (which is already the case in Germany), interest-free and fee-free loans, all overdraft facilities and leasing agreements as well as credit agreements concluded via peer-to-peer lending platforms. The directive should also cover credit agreements under which the credit is to be repaid later (buy now pay later), for example new digital financial instruments with which consumers can make purchases and only pay them off over time, as well as credit agreements under which the credit is to be repaid within three months and where only low costs are incurred.

An important innovation is the application of the directive to crowdfunding service providers. A crowdfunding service provider operates a publicly accessible digital platform to bring potential lenders together with consumers. This financing can take the form of a consumer loan.

Adequate explanations and information for consumer loans

The directive aims to Provision of appropriate explanations and information for the consumer. The standard information relates to the main features of a loan. These requirements are already known from the Residential Property Directive and are now also being implemented in the consumer credit sector.

As pre-contractual information, lenders, credit intermediaries and providers of crowdfunding credit services are obliged to provide consumers with customized Information on on the basis of the form "European standard information on consumer credit" to the company.

In addition, consumers should complete a one-page form "European standard overview of consumer credit" with the most important features of the loan in question to make it easier for you to compare different offers.

Consumer Credit Directive: Use of AI, profiling and databases in the lending process

Creditors, credit intermediaries and providers of crowdfunding credit services should be allowed to personalize the price of their offers to certain consumers or certain groups of consumers on the basis of automated decision-making processes or profiling of consumer behaviour that allows them to assess the purchasing power of the consumer. Consumers should therefore be informed if the price offered to them has been determined on the basis of automated processing so that they can take the possible risks into account when making their purchase decision.

If a decision rejecting a credit application is based on a consultation of a credit database, the creditor or provider of crowdfunding credit services shall inform the consumer of this and of the information about him contained in the database consulted.

Prohibition of tying transactions

Tying transactions (mandatory additional products to the credit agreement) should be prohibited. Unless they demonstrably bring clear benefits to consumers, taking into account the availability and prices of the products concerned. Bundling transactions (optional additional products to the credit agreement) remain permissible.

Advisory services for consumer loans 

It should Standards for consulting services be introduced, a Obligation to provide advice but should not be connected. The only obligation introduced is that a sufficient number of credit agreements or crowdfunding credit services available on the market must be included in the advice and that the advice must be provided in accordance with the borrower's profile.

Prohibition of offering unsolicited credit products

The prohibition on the unsolicited sale of credit products also applies to the sending of unsolicited, pre-approved credit cards to consumers. It also applies to the unilateral increase of a consumer's credit card overdraft/spending limit by the creditor without the consumer's prior request or express consent.

Upper cost limit for consumer loans in the Consumer Credit Directive

The aim is to introduce an obligation for member states to set upper limits for interest rates, the annual percentage rate of charge or the total cost of the loan. In Germany, the German Federal Court of Justice has been ruling on immorality for decades. According to this, a loan interest rate is immoral and invalid if it is more than 90 percent of the usual market interest rate for this segment.

Expertise of lenders and brokers

Rules of conduct and obligations of lenders and credit intermediaries should be defined. Employees must have appropriate skills and knowledge. It should therefore be stipulated that Relevant knowledge and skills at company level must be verified.

Creditworthiness assessment in consumer credit law

The credit assessment should be based on necessary, sufficient and appropriate information about the financial and economic circumstances. It should be possible to provide alternative data sources for creditworthiness checks that reflect the principles of the GDPR. This means that the creditor must assess the consumer's ability to repay the loan on the basis of necessary and appropriate information about the consumer's income and expenditure and other financial and economic circumstances, taking into account the consumer's interests. However, the creditor may not go beyond what is absolutely necessary for such an assessment.

The loan may only be granted if the result of the creditworthiness check meets the Probability shows that the Obligations arising from the loan agreement can be fulfilled.

Consumer financial education

Member States should be obliged to promote consumer financial education. This applies in particular to consumer credit agreements in order to improve consumers' general financial education. This also applies to products sold digitally. In order to further empower consumers to make informed decisions about borrowing and to manage debt responsibly, Member States should support measures to promote consumer education on responsible borrowing and debt management, in particular with regard to consumer credit agreements.

Early repayment of loans

The consumer should be able to meet his obligations before the end of the period agreed in the credit agreement. In the event of early repayment, the creditor should be entitled to reasonable and objectively justified compensation for the costs directly linked to the early repayment of the credit, taking into account any savings made by the creditor.

Consumer Credit Directive: Conclusion and outlook

As an initial assessment, it can be stated that many of the requirements of the Mortgage Credit Directive can now also be found in the Consumer Credit Directive. This also applies to the codification of the creditworthiness assessment requirements from the EBA guidelines on lending and credit monitoring.

The European Parliament will consider the proposal from fall 2021. It will be many months or even years before agreement is reached on the directive. Only then will the complex transposition into national law and practice take place.

If you are interested in such exciting developments in the economy, you should familiarize yourself with the Bachelor of Business Administration with a focus on "Banking" at Allensbach University employ.