Consumer Credit

Consumer credit agreements

Directive 2008/48/EC on consumer credit agreements

It harmonises EU rules regarding credit granted to consumers who borrow to finance purchases of goods and services (holidays, goods, new cars, etc.)
It aims to open up the EU’s consumer loan market, whilst improving the transparency of contract terms and the level of consumer protection.

KEY POINTS

The directive does not apply to credit agreements:

guaranteed by a mortgage, which are regulated by Directive 2014/17/EU on credit agreements for consumers relating to residential immovable property;
to acquire land or property, which are also regulated by Directive 2014/17/EU;
for less than €200 or more than €75,000. However, by 21 March 2016 at the latest (the date by which Directive 2014/17/EU had to become law in EU countries), the directive had also to be applied to non-guaranteed credit agreements for the renovation of residential immovable property, for more than €75,000.

Advertising for credit that includes aspects relating to the cost of this credit (for example, the interest rate) must provide standard information based on a representative example, containing, amongst other things:

the rate of interest and cost details;
the credit amount;
the annual percentage rate (APR) which represents, in the form of a percentage, all mandatory costs in order to obtain the credit (loan interest rate, administration fee, obligatory insurance premiums, guarantee fees, etc.).

Pre-contractual phase

During the pre-contractual phase, the lender must provide understandable information on the essential features of the credit offered in good time before entering into the contract. This includes, amongst other things:

the duration of the credit agreement;
the total credit amount;
the borrowing rate and terms applicable to this rate;
the annual percentage rate and the total amount due by the consumer;
the amount, number and frequency of payments;
fees related to or resulting from the agreement;
consequences of late payment and non-performance.

Consumers should receive information in a standardised format.

Regulation (EU) 2016/1011 amends Directive 2008/48/EC and requires the lender during the pre-contractual phase to the consumer credit agreement, where the credit agreement references a benchmark, to provide the name of that benchmark and of its administrator and the potential implications for the consumer.

Credit agreement contract

The credit agreement must also contain similar information in a similar format to that provided during the pre-contractual phase.

Lenders must:

provide adequate explanations to consumers so they can choose an agreement which meets their needs and financial situation;
assess their customers’ creditworthiness before signing an agreement, and inform the consumer, if their credit application is rejected, of the result and the details of the credit database used.

Consumers must:

have 14 days in which to withdraw from the agreement, without having to state a reason;
have the right to make early repayment of their credit at any time, provided that the creditor receives fair and objectively justified compensation.

DOCUMENTS

Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers and repealing Council Directive 87/102/EEC (OJ L 133, 22.5.2008, pp. 66-92)

Successive amendments to Directive 2008/48/EC have been incorporated into the original document. This consolidated version is of documentary value only.

Buying residential property – rules on loans

Directive 2014/17/EU –rules on home loans

Known as ‘the Mortgage Credit Directive’, it aims to ensure that all consumers who take out a mortgage to purchase a property are adequately informed and protected against the risks.

KEY POINTS

The directive applies to all loans made to consumers for the purpose of buying a home, including loans that are guaranteed by a mortgage or by another comparable security.

It provides for better information to consumers on available mortgage products including:
an obligation on lenders to provide consumers with a standardised information sheet (European Standardised Information Sheet – ESIS) which allows them to shop around to identify the right product for them;
inclusion in the ESIS of worst-case scenarios regarding variable interest and foreign currency loans so as to alert consumers of potential interest rate variations;
a guaranteed period of reflection or a right of withdrawal for borrowers prior to being bound by the credit agreement;
new EU-wide standards to assess the credit worthiness of mortgage applicants so as to ensure that borrowers can meet their repayment obligations.

The directive establishes business conduct principles.
These ensure that lenders and credit intermediaries (i.e. persons or companies providing information and assistance to consumers looking for a mortgage loan) act honestly and transparently in the consumer’s interests.

Lenders and intermediaries must ensure that their staff have up-to-date knowledge on loan agreements and that customers are provided with all the necessary information before signing any agreement.

Consumers have a general right to repay their loans early, thus benefiting from a reduction in the total remaining cost of the mortgage. In such cases, EU countries may entitle lenders to fair compensation for any costs directly and exclusively linked to early repayment.
The directive establishes an EU passport regime for credit intermediaries. This means that in principle once authorised in one EU country, a credit intermediary is allowed to provide services throughout the EU.
It has applied since 20 March 2014. EU countries had to incorporate it in national law by 21 March 2016.

DOCUMENTS

Successive amendments to Directive 2014/17/EU have been incorporated into the original text. This consolidated version is of documentary value only.

Insurance distribution — new rules from 2018

Directive 2016/97 — insurance distribution rules

It aims to improve the way insurance products are sold so that they will bring real benefits to consumers and retail investors in the EU.

KEY POINTS

Under the new directive on insurance distribution*, consumers and retail investors buying insurance products or insurance-based investment products will benefit from:
greater transparency of insurance distributors in regard to the price and the costs of their products, so that it is clear to consumers what they are paying for;
better and more comprehensible information, so that consumers can take more informed decisions, with a simple, standardised Insurance Product Information Document (IPID) for non-life insurance products;
where insurance products are offered in a package with another good or service, for example when a new car is sold at a bargain price together with motor insurance, consumers will have the choice to buy the main good or service without the insurance policy;
rules on transparency and business conduct to prevent consumers from buying products that do not meet their needs.

These rules now also apply when a product is bought directly from an insurance company, and not only (as in the past) when products are bought via intermediaries such as agents or brokers.

There are stronger safeguards for the sale of life insurance products with investment elements, such as unit-linked life insurance contracts. Insurance distributors selling such products have to make sure that the product is suitable with regard to the customer’s financial situation, investment objectives and experience in the investment field.

Insurance distributors will benefit from fair competition on a level playing field and an improved legal framework for cross-border business.
The directive recasts and replaces Directive 2002/92/EC on insurance mediation with effect from 23 February 2018.

BACKGROUND

For more information, see:

‘Distribution of insurance products and after-sale activities’ on the European Commission’s website
Insurance distribution: to sell, propose to sell, advise on or carry out other work before concluding an insurance contract including dealing with claims after an insurance event.

DOCUMENTS

Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution (recast) (OJ L 26, 2.2.2016, pp. 19-59).It applies from 22 February 2016. EU countries have to incorporate it into national law by 23 February 2018.

Directive 2002/92/EC of the European Parliament and of the Council of 9 December 2002 on insurance mediation (OJ L 9, 15.1.2003, pp. 3-10)

Successive amendments to Directive 2002/92/EC have been incorporated in the original text. This consolidated version is of documentary value only.