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New Consumer Credit Rules

Publication: ZRVP

The European Parliament approves safeguarding measures to protect consumers from credit card debt, overdrafts, and ill-suited loans.

While financial harsh predictions are voiced across the globe, difficult economic situations call for legislative decisions to flatten out potential risks which might occur during such critic situations. For such reasons, the European legislator has responded with a new set of rules to safeguard an increasing number of individuals seeking credit.

Following extensive administrative stages and discussions initiated earlier in 2022, the European Parliament has approved the new Consumer Credits Directive (CCD). This critical legislation, agreed upon by Parliament and Council negotiators in December 2022, awaits publication in the Official Journal.

Addressing Vulnerabilities

The former legislative framework, notably the Consumer Credits Directive of 2008, required re-evaluation and reform to align with today’s European financial landscape. Two critical concerns emerged: insufficient protection for consumers vulnerable to over-indebtedness and a lack of harmonization in credit regulations across EU member states.

Expanding Scope

The CCD’s reach extends to loans ranging from below EUR 200 to up to EUR 100,000, unsecured loans exceeding EUR 100,000 for residential property renovations, and interest-free, charge-free credits. The directive also provides safeguards for hire or lease agreements with purchase options and one-month repayment overdraft facilities.

Responsible Lending Practices

Negotiations emphasized a more focused approach, requiring creditors to conduct comprehensive creditworthiness assessments before granting credit. More precisely, such thorough assessment should contribute to preventing irresponsible lending practices and over-indebtedness.

The directive strengthens transparency by mandating pre-contractual information and adapting it for digital services. It also regulates credit advertising, ensuring creditors provide clear and prominent warnings about the costs of borrowing and refrain from implying that credit will improve consumers’ financial situations. In terms of consumer behavior, the new directive prohibits manipulative practices, such as pre-ticked boxes and unsolicited credit sales, to protect consumer interests.

Next steps

The directive awaits publication in the Official Journal of the EU. Subsequently, Member States will have two years to adopt necessary laws and administrative provisions, followed by three years for implementation. These measures signal a significant stride toward safeguarding consumers in an ever-evolving financial landscape.

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