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Credit agreements for consumers
The future legislation on credit agreements for consumers will harmonise the existing legislation in this area by ensuring the same level of consumer protection and facilitating access to transnational credit at European level. This should result in a fall in interest rates for consumers (thanks to increasing competition and the opening of national markets to foreign lenders).
Proposal for a Directive of the European Parliament and of the Council on credit agreements for consumers amending Council Directive 93/13/EC [COM(2002) 443 final -Not published in the Official Journal].
The following text retains the last modified proposal for a Directive [COM (2005) 483 final] which consolidates the amendments which the Commission has made to the initial proposal since 2002.
The latest proposal gives the consumer a number of advantages: the right of withdrawal within 14 days, the right of early repayment and the right to cancel a loan if a consumer wishes to withdraw from the purchase to which it is linked.
In short, the future legislation covers access to databases, information and rights concerning credit agreements, the annual percentage rate of charge, registration procedures, the status and control of lenders and intermediaries, implementing measures and transitional provisions.
The future legislation on consumer credit will harmonise some aspects of the existing legislation in this area and includes the principle of mutual recognition for all Member States.
It leaves outside the field of application certain aspects which were not included in the initial proposal, such as property contracts, which will be the subject of future legislation (see the Green Paper on mortgage credit). For this reason, the Commission has proposed the exclusion of loans higher than EUR 50 000 from the proposal. Above this amount, consumers use credits mainly as mortgage loans.
Contract agreements excluded
The future Directive will not apply:
- to credit agreements guaranteed by a mortgage or another credit used for this purpose;
- to credit agreements higher than EUR 50 000;
- to hire agreements, unless they provide for the transfer of the legal title to the hirer;
- to leasing agreements;
- to credit agreements in instalments;
- to credit agreements granted to employers and, subsidiarily, to their employees with no interest;
- to credit agreements concluded with an investment firm;
- to contracts resulting from a legal decision;
- to contract agreements linked to a deferred payment, free of charge, for settlement of an existing debt;
- to credit agreements linked to a deposit ;
- to credit agreements linked to loans granted to a restricted public.
Information given to the consumer
The Commission proposes mandatory precontractual information and contractual information.
Information on financial matters must be mentioned in the advertising used before signing the contract in order for the consumer to be able to compare the different offers. It also applies to the main intermediaries of the credit.
The information to be included in the advertising is:
- the total amount of credit (including that of the insurance if it is mandatory to obtain the credit or if it is contracted with the lender or intermediary);
- the annual percentage rate of charge (indicated by a representative example);
- the duration of the credit agreement;
- the amount, number and frequency of payments;
- all the charges linked to the credit requested.
Precontractual information includes:
- the financial information updated where the lender is able to modify the amount after the date of conclusion of the credit agreement;
- essential information owed to the consumer on paper in a clear and precise form or in another stable format: contract duration, total cost, payment plan, the costs of maintaining an account where payment and debit operations are recorded, the obligation to take out insurance, interest on payments due, etc.
Mandatory contractual information includes precontractual information, the right of withdrawal and the right of early repayment.
In detail, the credit agreement must include:
- information on access to out-of-court dispute resolution procedures;
- the contracting parties' and, where appropriate, the intermediary's identity and address;
- contract duration;
- the total amount of credit and the conditions governing the debiting of the credit;
- the borrowing rate, the conditions governing it and any reference index linked to it;
- the annual percentage rate of charge and the total cost of credit;
- the amount, number and frequency of payments to be made;
- a periodical reimbursement table where a fixed-term credit agreement has been signed and there is a fixed interest rate;
- a statement showing the periods and conditions for the payment of the borrowing interest and of the recurrent and non-recurrent charges if charges and interest are to be paid without capital amortisation;
- the costs of maintaining the account recording payment operations and other charges;
- a statement of the costs;
- the sureties and insurance required ;
- the existence or absence of a right of withdrawal and the duration of it;
- the procedure and costs for early repayment;
- the procedure to be followed where a credit agreement might be terminated.
The Community legislation currently consists of three Directives on consumer credit: Directive 87/102/EEC, Directive 90/88/EEC and Directive 98/8/EC. The new legislation will harmonise these three Directives into a single text.