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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.”
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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