The European ParliamentThe Internal Market and Consumer Protection (EP) Committee on Tuesday (July 12th) almost unanimously approved new EU rules which, according to lawmakers, “aim to protect consumers online against debt credit cards, overdrafts and loans unsuited to their financial situation”. situation.”
The new rules are part of the review of the Consumer Credit Directive (CDD) which, after more than 14 years since it was first adopted in 2008, regulators considered it no longer fit for purpose. Following the rise of digital lenders and the increasing online distribution of consumer credit, the European Commission proposed a revision of the CCD in June 2021. The Commission’s proposal aims to respond to these technological developments by broadening its scope, by introducing pricing rules for certain credits, clarifying information requirements and reviewing creditworthiness assessments.
The recent approval by the EP committee paved the way for the start of interinstitutional negotiations between the Parliament, the Council and the European Commission, most likely after the summer holidays. But even if committee-level approval was nearly unanimous, the road to the text becoming law may require further discussion. Not only did the parliamentary committee take longer than expected to approve its position on the proposed text, approval was expected on 15 June, but the public positions of Parliament and the Council differ on certain points and the resolution of differences may require several rounds of the table. negotiations.
Read more: New EU consumer credit rules could be approved by summer
The EP did not make many changes to its initial position, but it did introduce new requirements to assess the creditworthiness of people who take out a loan before it is granted. For example, businesses should require information from consumers about their obligations and living expenses. Companies could use information from non-bank lenders, telecommunications providers and utilities, but they will not be able to use social media and health data for the assessment.
To protect consumers, the EP is also proposing rules requiring businesses to offer “clear, concise and standardized credit information” that is easily readable on digital devices. Some other proposals may still require further clarification. For example, the parliamentary committee wants new rules on credit advertising that do not incentivize over-indebted consumers to take credit that “suggests that success or social success can be gained through credit agreements”.
One area that is getting the attention of legislators is that of overdraft facilities and overdrafts. The parliamentary committee wants to regulate these products in order to increase consumer protection, and this could be the subject of further discussion during the trialogue negotiations. The proposed CDD left wide latitude to Member States to regulate prices or ceilings for consumer loans. Some previous versions of the proposal included caps on interest rates, APRs and the total cost of credit agreements, but the final proposal left the decision on the level of the caps up to member states. Parliament’s latest comments suggest lawmakers may want to introduce new rules at EU level to impose certain limits, which would then take power away from member states.
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The position of the Council of the EU is mainly aligned with the text proposed by the European Commission, but some of the amendments introduced aimed to give more flexibility to lenders.
The council wants to exclude certain products from the scope of the directive, such as crowdfunding and deferred payments such as debit cards. She also suggested an “optional partial derogation” for other products such as loans of less than 200 euros, credits in the form of overdraft and contracts with a maximum duration of three months and at negligible costs.
When it comes to these types of credit, each Member State could opt for a regime that reduces pre-contractual information requirements and disclosure requirements and removes the prepayment provision.
The EP and the Council seem to have slightly different positions regarding the amount of information required for certain types of loans and the scope of the directive. Although the overall positions of the two institutions are close to each other and there are no major disagreements, the road to the final approval of the CDD may still require further negotiations.
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