17 February 2015

EBF response to EBA’s consultation paper on draft guidelines on creditworthiness assessment

Conducting systemic and thorough creditworthiness assessment is at the heart of banking activities and represents an important prerequisite for both credit institutions and customer, as regards the evaluation of the risk and of the impact of the credit must have on the customer budget.

The EBF therefore welcomes the EU Institutions’ decision in the context of the Mortgage Credit Directive (MCD) to adopt a high-level principles-based approach to the assessment of creditworthiness to allow the National Competent Authorities to implement the Guidelines according to their national specificities.

However, the EBF considers that the following key points should be particularly underlined:

• The creditworthiness assessment is already a general principle of the European banking system introduced by the Capital Requirements Directive (2006/48/EC) and Regulation (EU) no. 575/2013. The Guidelines implementing the Mortgage Credit Directive should reference the existing regulations in order to avoid overlapping, opposite or duplicated provisions


• The suitability assessment issue was analysed in depth by the European Parliament, the Council and the Commission when adopting the Mortgage Credit Directive (MCD). The “suitability assessment” was considered not appropriate for products such as mortgage and consumer credit and was rejected. It is therefore vital to clarify that the Guidelines do not refer/request any “suitability assessment” to avoid some provisions in the Guidelines being mis-interpreted extensively and introducing “de facto” a suitability assessment (for example in 1.1 (Verification of the consumer’s income) and 4.1 (Assessment of the consumer’s ability to meet his/her obligations under the credit agreement)

The text of the MCD was finalised in a way that avoids increased litigation between banks and borrowers (in the event of consumer default, the creditworthiness assessment will not be automatically considered wrong based on an ex-post evaluation). The Directive notably obliges intermediaries to assess creditworthiness and inform the consumers concerned (adequate explanations) while – at the same time – making consumers responsible for choosing the product, meaning that suitability assessment was not included in the MCD.

Given this, the European Banking Industry considers it extremely important to constrain the Guidelines to the decisions that were taken when approving the Directive, without broadening the provisions on creditworthiness or on arrears and foreclosures. Reopening issues already solved at a political level would not contribute to the stability of the legal framework in terms of certainty about the compliance obligations.

• The Guidelines should not be limited to responsible lending obligations but should include reference to responsible borrowing in alignment with the provisions of the MCD in Recital (58), Article 18.4 and Article 20.3 and 20.4 (in reference notably to Guidelines 3 and 4)


• It is imperative to preserve a right balance between gathering relevant information on the financial situation of the customer and the respect of data protection requirements


• This creditworthiness assessment also involves the borrower to which it belongs to provide accurate and clear information about his/her personal and financial situation. It is also important to insist on the fact that it should not be imposed to lenders to predict the financial situation of their customers. Indeed primarily failures concern the accidents of life (illness, divorce, job loss ...) generating an abrupt change in the financial situation of the customer. In essence and in practice an assessment can only take into account what is known or planned at the time the lending is being made – retirement being one example


• The MCD was approved less than one year ago and must be implemented by March 2016, meaning that all national-level procedures will have to be modified to comply with the new Directive. The implications of the transposition of the Directive and the implementation of the Guidelines could be significant for firms’ MCD implementation programmes, and delivery timescales may be challenging (taking into account that no additional time is provided to the industry, when the law/Guidelines will be adopted, to adapt their ICT systems, prepare the programming etc.). It is important to note that this additional time already requested by the industry is necessary to avoid reiterating the difficulties which occurred during the transposition and implementation of the Consumer Credit Directive in certain countries

Full response

© EBF