Brussels, 16 January 2008
Consumer Commissioner Kuneva welcomes European Parliament decision to back new rules on consumer loans
Consumers across Europe look set to be able to make better informed choices when they take out consumer credit loans - paying for holidays, weddings or a new car - following a decision in the European Parliament today, Wednesday 16 January 2008. The proposed EU Directive on Consumer Credit Loans aims to break open the €800 billion EU consumer loans market which remains largely fragmented into national markets denying consumers choice and more competitive prices. The new rules will make the market more transparent for consumers and business competitors. The main effect will be to provide standard, comparable information to customers across the EU taking out a credit loan. Under the new rules, consumers will be assured access to key facts and figures in advertisements. For credit offers, the information given to consumers (e.g interest rates, amount, number and frequency of payments, the obligation to take out an insurance or the charges for defaulting) must be set out in a new comparable EU-wide European Credit Information Form. And there will be a new single EU-wide method for calculating the Annual Percentage Rate of Charge (APR) so consumers can see the real cost of credit. The proposed directive also sets common standards on a right of withdrawal so consumers can change their mind. This Consumer Credit Directive is part of a bigger drive to boost the cross border market in retail financial services as set out in the recently published Green Paper on Retail Financial Services.
EU Consumer Commissioner Meglena Kuneva said, "At the moment trying to compare different credit offers across the European market is like trying to compare apples and pears. This is bad for competitive business and denies consumers more choice and better prices. Standard, comparable information for all EU credit loans will make the market more transparent for business and consumers. This is good for business selling across borders and good for consumers who want to make informed choices. This is a step in the right direction."
Key facts and figures
Consumer loans represent on average almost 18% of the gross income of retail banking in the EU. The cost of credit varies greatly across the EU from the lowest rate of 6% in Finland to above 12% in Portugal. In Ireland the average cost of credit is 6.8% in Italy and Spain 9.4%. The internal market is not functioning, and direct cross-border consumer credit currently represents less than 1% of all credit transactions.
The current rules
The current rules on consumer credit result from Directive 87/102. This Directive contains certain minimum requirements, including in particular a few information obligations, obligations relating to the APR (Annual Percentage Rate of Charge) calculation and a basic right to repay early without any specifications. Most Member States have gone beyond these requirements, and essentially there is a patchwork of different rules across the 27 EU Member States.
The new proposals
The Directive on Consumer Credit aims to give consumers standard, comparable information on:
The Directive also
sets out two essential rights for consumers:
The Directive on Consumer Credit will soon be formally adopted and will have to be implemented early 2010.
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