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EU investigates consumer credit websites - a market underperforming for consumers

European Commission - MEMO/12/2   10/01/2012

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MEMO/12/2

Brussels, 10 January 2012

EU investigates consumer credit websites - a market underperforming for consumers

Questions and answers

SECTION 1. THE CONSUMER CREDIT SWEEP

The Consumer Credit Sweep is an EU-wide investigation of websites offering common consumer credit to consumers (personal loans, credit cards, car loans). National enforcement authorities examined more than 500 websites across the 27 Member States plus Norway and Iceland during the last week of September 2011 to see where consumer rights are being compromised or denied.

What is a Sweep?

An "EU-sweep" is a joint EU enforcement action to check for compliance with consumer protection laws. It involves a targeted and coordinated check on a particular sector. National enforcement authorities then follow up, contacting the noncompliant business operators demanding that they come into line with the relevant requirements. Legal action can be taken against operators who violate EU consumer law. National authorities investigate and take enforcement actions for national cases. For cross-border cases, enforcement authorities request assistance from colleagues in other Member States (e.g. where the trader operates from another country). This is done via the Consumer Protection Co-operation Network of national enforcement authorities from 27 Member States, Norway & Iceland.

Why were consumer credit websites picked up for this sweep?

We know from our Consumer Markets Scoreboard1 that the financial services market (including consumer credit) is underperforming for consumers. Also, complaints have been made to the European Consumer Centres (711 in 2010). The 2011 Sweep offered an opportunity to verify to what extent the financial sector is abiding by the information obligations imposed by the Consumer Credit Directive. This law (recently transposed in Member States) introduces harmonised requirements on information to be included in advertising consumer credit and to be provided to consumers in the pre-contractual phase as well as in the credit agreement itself. It aims to make it easier for consumers to understand and compare offers.

What sanctions can be taken?

EU consumer laws are enforced – and sanctions and penalties are therefore set – at national level. Measures can include contacting a company demanding it change or cease an illegal practice, imposing and collecting fines. Enforcement authorities are obliged to take measures (repeatedly if need be) until the infringement has ceased.

SECTION 2. RESULTS OF THE INVESTIGATION BY MEMBER STATE

Of the 562 websites checked, only 30% passed this sweep test for compliance with the relevant EU consumer rules and 70% of sites (393) were flagged for further investigation.

Member States were free to choose the number of sites to check (whether to optimise resources or for other reasons) and so some checked more sites than others. For the same reasons, websites found to be failing in the past were more likely to be assessed.

Table 1. Number of websites checked during the sweep and number of websites that need further investigation - by country

Sites flagged for further investigation

Country

Total number of websites checked

Total no. flagged sites

Flagged cross-border cases

Flagged national cases

Austria

10

6

 

6

Belgium

93

89

 

89

Bulgaria

6

0

 

0

Cyprus

10

10

 

10

Czech Republic

10

9

 

9

Denmark

11

9

 

9

Estonia

15

12

 

12

Finland

5

4

 

4

France

50

11

 

11

Germany

26

20

5

15

Greece

1

 0

 

0

Hungary

16

11

 

11

Iceland

10

0

 

0

Ireland

2

0

 

0

Italy

15

12

 

12

Latvia

9

7

 

7

Lithuania

5

3

 

5

Luxembourg

20

12

7

5

Malta

5

5

 

5

Netherlands

45

36

 

36

Norway

27

18

 

18

Poland

10

5

 

5

Portugal

40

14

 

14

Romania

20

11

 

11

Slovakia

10

10

 

10

Slovenia

0

0

Spain

29

29

1

28

Sweden

15

12

 

12

United Kingdom

47

38

 

38

29

562

393

13

380

SECTION 3. ABOUT THE CONSUMER CREDIT SWEEP

Who participated in the sweep exercise?

All 27 EU Member States plus Norway and Iceland participated2.

Link to national press contacts:

http://ec.europa.eu/consumers/enforcement/sweep/consumer_credits/national_press_contacts_en.htm.

Why does the sweep need to be done with pan EU co-operation?

Deceptive online selling practices often concern operators located abroad. They can be detected and tackled more effectively with EU wide co-operation. Under the Consumer Protection Cooperation Regulation, European authorities co-operate together to suppress cross border illegal practices. The network may examine any problematic sector in the EU at the same time. It may share experience and exchange best practices or tackle emerging new threats. This cooperation reduces fragmentation in the European internal market. Harmonised rules and enforcement are beneficial for consumers as it provides comparable and fair choices. It is also good for reputable business as enforcement tackles unfair or rogue practices ensuring a level playing field and fair competition.

Which types of consumer credit products were examined in this sweep?

Given the wide range of different consumer loans/credits on the market, this sweep was limited to the most common types of consumer credit falling within the scope of the Consumer Credit Directive. Sweepers were free to decide how many types of credit would be checked on any one site.

Revolving credit: this is open-ended credit where the credit line revolves – for example you have a credit ceiling of 1000€, you use 200€ and once this is repaid the 1000€ ceiling is available once again. Examples of revolving credits are overdrafts and credit cards.

Credit cards – this is a type of revolving credit.

Personal loans – this is a credit agreement which is put at the disposal of a consumer who agrees to pay back the amount in periodic payments.

Lump sum – this is a one off personal loan, where the consumer receives an amount, which is then typically paid back in instalments and with a fixed duration.

Car finance – this is a credit serving exclusively to finance the purchase of a car.

Were sales of mortgages examined in this sweep?

No, mortgages fall outside the scope of the Consumer Credit Directive which is the principal piece of legislation forming the basis of this sweep. There are no common rules on mortgages but the Commission has proposed a Directive which is currently under discussion.3

Which type of institutions did the Sweep check?

This Sweep investigated two types of operator: financial institutions and credit intermediaries. Member States were free to choose which websites to check and the number of websites.

  • Financial institutions are organisations (including banks) providing different types of financial services to their customers. They range from the high street banks to the more specialised credit providers. For the purposes of this Sweep, enforcers concentrated only on providers of consumer credit.

  • Credit intermediaries facilitate the conclusion of credit agreements between the consumer and the creditor by helping the consumer do preparatory work, by presenting offers to the consumer or by helping the consumer to conclude the credit agreement. They do not provide credit themselves.

What was checked?

The consumer credit sweep focused on essential information requirements which the trader must comply with when advertising and selling consumer credits on-line (for Sweep Plus please see point 3.2. below). The following information was verified:

  • information provided in advertising consumer credit

  • main characteristics of the offer

  • total cost of the offered consumer credit inclusive of all foreseeable charges and taxes, and displayed in a fair way

Most common problems found

Table 2. Most common problems found

Type of problem

Examples of problem

Total number of websites in which these problems were detected

(Financial Inst / Credit Inst)

% of problematic websites

393

Missing information in consumer credit advertising (standard information)

missing information on the annual percentage rate of charge (APR) which is essential to compare offers

258

(136 / 122)

65%

Omission of key information on the offer

missing information on the type of interest rate (fixed or variable or both), together with particulars of any charges included in the total cost of the credit

244

(113 / 131)

62%

Misleading presentation of the costs

e.g. the consumer is not informed that he has to conclude an insurance to get the consumer credit

116

(39 / 77)

29%

Note: Some sites had multiple problems

Table 3. Problems per credit type (on websites flagged for further investigation)

Country

Financial Institution

(problems on 224 sites out of the 367 sites checked)

Credit Intermediary

(problems on 169 sites out of the 195 sites checked)

Total

Personal Loan

144

61

205

Lump sum

59

62

121

Car Finance

57

53

110

Credit Cards

56

24

80

Revolving

30

39

69

Others

8

18

26

The above figures are not exhaustive or statistically representative as some Member States looked at sites they knew to be problematic rather than random samples. Authorities were free to choose the number of credit types on each website. Some Member States examined only one type of credit per website, while others checked several credit types on each site. For these reasons the results do not allow a direct comparison between different credit types.

The above indicated suspected infringements were found on 169 credit intermediary sites (87% of the 195 sites checked) and on 224 sites of financial institutions (61% of the 367 sites checked). Some sites had more than one suspected infringement.

What are the EU consumer rules that financial institutions need to respect?

The Consumer Acquis and its translation into national laws are relevant here. In particular:

  • Consumer Credit Directive 2008/48/EC. This Directive contains requirements regarding the information to be included in advertising and to be provided to consumers in the pre-contractual phase.

  • Unfair Commercial Practices Directive 2005/29/EC. Under the UCP Directive, traders must display in a clear and intelligible way all the key information that consumers need to make an informed choice (includes information on the total cost of the credit inclusive all foreseeable taxes and charges).

  • Unfair Terms and Conditions Directive 1993/13/EC. Under this Directive the terms and conditions of the sale contract must not be unfair, must not cause a significant imbalance in the parties' rights and obligations to the detriment of the consumer (e.g. if the standard contractual terms are not drafted in a plain and intelligible language).

  • Distance Marketing of Financial Services Directive 2002/65/EC. The Directive lays down fundamental rights for consumers to boost consumer confidence in distance marketing techniques - and in particular in internet transactions across borders. The Directive includes also a ban on abusive marketing as well as rules to restrict other practices such as unsolicited phone calls and e-mails ("cold calling" and "spamming").

Did the results demonstrate a cross-border dimension?

The sweep identified 13 cross-border cases which were flagged for further investigation.

Were breaches different in different Member States?

Trends were similar across Member States.

How long does enforcement take?

It varies. Some companies are ready to correct mistakes after the first contact by the enforcers while others use all the available tools (including legal ones) to postpone necessary changes. The length of the enforcement phase depends on how complicated the individual cases are or whether they require international coordination in which case it may take more than a year.

For more information please see : IP/12/06

1 :

Consumer Markets Scoreboard

2 :

Slovenia participated but did not find any websites offering online consumer credit.

3 :

Proposal for a Directive on credit agreements relating to residential property, March 2011


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