Consumer credits: why updated EU rules are needed

Source: European Parliament (EP) i, published on Monday, September 18 2023.

MEPs have adopted new rules to protect consumers from credit card debt and overdrafts.

Parliament approved new consumer credit rules in September 2023, following an agreement reached with the Council in December 2022.

Consumer credits are loans for the purchase of consumer goods and services. They are often used to pay for cars, travel as well as for household goods and appliances.

Existing EU rules

The existing EU rules - the Consumer Credits Directive - aim to protect Europeans while fostering the EU's consumer loan market. The rules cover consumer credits ranging from €200 to €75,000 and require creditors to provide information to allow borrowers to compare offers and make informed decisions. Consumers have 14 days to withdraw from a credit agreement and they can repay the loan early, thereby lowering the cost.

The rules were adopted in 2008 and needed to be updated to meet the current environment.

Why changes are needed

The difficult economic situation means more people are searching for loans, and digitalisation has brought new players and products to the markets, including non-banks, such as crowdfunding loan apps.

This means, for example, that it is easier and more widespread to take small loans online - but these can turn out to be expensive or unsuitable. It also means that new ways of disclosing information digitally and of assessing the creditworthiness of consumers using AI systems and non-traditional data need to be addressed.

The current rules do not protect consumers who are vulnerable to over-indebtedness well enough. In addition, the rules are not harmonised between the EU countries.

New consumer credit rules

The new rules say that creditors must ensure standard information to consumers in a more transparent way and allow them to easily see all essential information on any device, including a mobile phone.

Committee members stressed that credit advertising should not encourage over-indebted consumers to seek credit and it should contain a prominent message that borrowing money costs money.

To help determine whether a credit suits a person's needs and means before it's granted, MEPs want information such as current obligations or cost of living expenses to be required, but said social media and health data should not be taken into account.

The new rules require:

  • Proper assessment of consumer creditworthiness
  • Cap on charges
  • 14-day unconditional withdrawal option
  • Right to early repayment
  • A clear warning in ads that borrowing cost money

The new rules cover credits agreements up to €100,000, with each country deciding the upper limit based on local conditions. MEPs want overdraft facilities and credit overrunning, which are becoming increasingly common, to be regulated, but say it should be up to EU countries to decide whether they apply the consumer credit rules to some loans, such as small loans up to €200, interest-free loans and loans to be repaid within three months and with minor charges.

The Council will also have to approve the new rules before they can come into force.

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