The EU Commission’s proposal falls short on key points. Consumer protection for small loans is not sufficiently strengthened. People in difficult financial situations are often misled by supposedly favourable interest rates.
he European Commission presented its plans for a revision of the
Consumer Credit Directive. The directive has not been revised since its
adoption in 2008, before the global financial crisis. With today’s
proposals, the Commission wants to strengthen consumer protection, but
also cut red tape for providers. Among other things, the Commission
proposes that small loans of less than 200 euros should also fall within
the scope of the directive. Furthermore, it should equally apply to
further products such as overdrafts or P2P loans. In the future, all
member states should introduce upper limits for usurious loans, but the
Commission does not want to make any concrete specifications on the
calculation or level of the limits. Certain forms of tied sales of loans
and other services should become inadmissible. Real estate loans are
not covered by the Consumer Credit Directive and are not affected by
today’s proposals because they are governed by a separate EU directive.
MEP Sven Giegold, financial and economic policy spokesperson of the Greens/EFA group commented:
“The revision of the Consumer Credit Directive is overdue. The EU
Commission’s proposal falls short on key points. Consumer protection for
small loans is not sufficiently strengthened. People in difficult
financial situations are often misled by supposedly favourable interest
rates. The EU Commission’s proposal does not solve this fundamental
problem. Information requirements alone are not enough to strengthen
protection against over-indebtedness.
We need strict and effective rules against the misleading
advertising of loans. Especially in the case of loans with variable
interest rates or exchange rate risks, providers have been allowed to
use unrealistic fixed interest rates in advertisements. Consumers are
thus unable to realistically assess the risks of a loan. Fatally, the
Commission does not want to change this in its proposal. Whenever future
interest rates are unclear, we need a scenario approach. All
advertising and information material should be based on conservative
forecasts of interest and exchange rate developments. The unrealistic
extrapolation of current rates should have no place in promotional
material.
The Commission’s proposals will not change the basic problem of doubtful business models. The Commission fails to recognise that people
in financial or personal emergency situations are often not free to
make their own decisions. Many business models deliberately exploit the
distress of these people and create dependencies, especially through
over-indebtedness. Providers should be subject to responsible lending
requirements. Instead, the existing obligation for providers to
carefully analyse the creditworthiness of applicants categorically
excludes certain groups without preventing exploitative or usurious
business models.
Unfortunately, the Commission repeats the basic mistake of the
existing directive and focuses on information asymmetries between
lenders and borrowers. In theory, information obligations should enable
prospective debtors to make better decisions. In practice, however,
consumers are littered with information material they often do not
understand. Without a simple, fair and transparent way to compare
different offers, the information obligations remain a mere sham.”
Sven Giegold
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The proposal of the EU Commission:
https://ec.europa.eu/info/business-economy-euro/banking-and-finance/consumer-finance-and-payments/retail-financial-services/credit/consumer-credit_en
© Sven Giegold
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