16 January 2008

EP adopts consumer credit directive

The European Parliament adopted at second reading the consumer credit directive. The amendments adopted should conclude the legislative procedure as they were negotiated with the Council in advance. The new legislation will cover consumer loans between €200 and €75 000 which has to be repaid within more then one month. It will only cover credit contracts, not guarantors and other aspects of credit agreement law. The directive will apply only to loan contracts on which interest is paid, and not products such as deferred payment cards and will not cover the mortgage credits.

The directive lays down the standard information that must be mentioned in advertising containing financial information on a loan. MEPs chose to leave more room for manoeuvre than either the Commission or the Council proposed when it comes to the basic pre-contractual information which must be provided to the consumer using the standard European consumer Credit Information form. But the text adopted by European Parliament is less strict than that in the Council's common position when it comes to contractual and pre-contractual information which lenders are obliged to provide to their customers in the case of overdrafts.

The new directive will give consumers the right to pay off loans early while also entitles the lender to ask a compensation for possible costs, fair and objectively justified, directly linked to early repayment of credit.

The directive defines the situations when the compensation cannot be claimed and allows Member countries to provide that the creditor may exceptionally claim a higher compensation. 

Such compensation may not exceed 1% of the amount of credit repaid early, if the period of time between the early repayment and the agreed termination of the credit agreement exceeds one year. If the period does not exceed one year, the compensation may not exceed 0.5% of the amount of credit repaid early.

A right of cancellation within 14 days will also apply EU-wide. But MEPs say that for linked credit agreements this period could be reduced to three days at the request of the customer.

The Directive must now be formally agreed by the Council. Member States have two years from the date of the entry into force for implementing this Directive. The Commission has to undertake every five years a review of the thresholds laid down in this Directive and its annexes and the percentages used to calculate the compensation payable in the event of early repayment.

Resolution and consolidated text

Adopted texts 16 January

Commission background information

© Graham Bishop