European Association of Public Banks
- European Association of Public Banks and Funding Agencies -
31 January 2003
Position paper of the EAPB on the revision of the Consumer Credit Directive
On 11 September 2002, the European Commission published a proposal for a
directive on the harmonisation of the laws, regulations and administrative provisions
of the Member States concerning credit for consumers. The EC proposal has the aim
to replace the current consumer credit directive.
The EAPB would like to make the following comments on the proposal:
Scope of the directive

The proposal extends the scope of the directive to credit and surety agreements.
The latter should be exempted from the directive, because the objective and the
economic purpose of surety agreements are different from those of a credit
agreement.

If, however, the inclusion of surety agreements should be maintained, it is crucial
that only surety agreements for credit agreements with consumer purposes will
be subject of the provisions of the directive. The financing of SME’s would be
significantly more difficult if the directive applies to surety agreements for
commercial or professional purposes.

Further, a minimum and maximum threshold as in article 2 (1) f of the current
Consumer Credit Directive should be maintained. This threshold could be
increased to 500 or 1000 Euro (as floor) and 50000 Euro (as ceiling). Otherwise
small credit amounts would entail disproportionate costs.

Overdrafts should not be regulated in the directive. Currently, the requirements
and the set up for an overdraft agreement are quite simple in order to ensure
that payments can be made even if a current account is indebted. This practice
could not be kept if overdrafts would fall under the scope of the directive.

Credits secured by a mortgage should be completely exempted from the scope
of the directive because they are of a fundamental different nature than the non-
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European Association of Public Banks
- European Association of Public Banks and Funding Agencies -
secured consumer credit. As it stands now, the proposal includes credits for
consumer purposes secured by a mortgage (or other surety) for which the
directive applies. On the other hand, home loans secured by a mortgage do not
fall under the directive. The proposal does not take into account that in some
Member States, the lender cannot ascertain that the credit is used only for
housing purposes because the consumer decides on the use of the credit.
Further, the use of just a small amount of the home loan credit secured by a
mortgage would entail the consequence that the credit agreement falls under the
future consumer credit directive. It would be preferable to eliminate any overlap
with the Recommendation on Home Loans which has been adopted on 5 March
2001 and entered into force on 1 October 2002, by extending the Code of
Conduct on Home Loans, which has been proven a great success so far, to all
credits secured by a mortgage or other surety.

Promotional Loans (i.e. student funding, loans for building up business) should
be removed from the scope of the directive. There is no need for harmonisation
of laws and administrative provisions concerning these specific loans. The
following specific facts of promotional loans should be kept in mind: they are
government sponsored credit agreements and the borrower acquires legal claim
to conclude the credit agreement with a credit institution. Because of this there
is no reason for protecting the consumer against the state. Moreover,
administrative authorities, responsible for granting promotional loans, do not
dispose of the information article 6 and 9 ask for.
Taking into account the borrower’s legal claim, the liability of exchanging
information, providing advice and responsible lending do not necessarily concern
promotional loans. For reasons of economic and training policy, it is a goal to
grant promotional loans regardless of the consumer’s credit standing. Article 6
and 9, demanding for a certain proof of the ability to repay the credit in advance,
would always lead to contradiction to the training policy. In the end the practise
of granting promotional loans would always lead to offences towards article 9
followed by the penalties of article 31. The economic consequences like creation
of additional costs due to extensive information requirements and increasing
credit costs, in the end would be passed on to the consumer or to the state.
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European Association of Public Banks
- European Association of Public Banks and Funding Agencies -
Principle of responsible lending (article 9)

First, it has to be pointed out that lenders do already practise responsible
lending out of their own interest. The introduction of this principle in a future
directive would cause many problems of interpretation because it is too vague a
concept. As it is formulated now, the principle would shift the balance for the
responsibility. Whereas currently the borrower takes the final decision whether to
take out a credit, article 9 of the proposal, alongside with the in article 6 (3)
stipulated lender’s duty to advise would put the responsibility for the credit or
the surety agreement entirely on the lender.

Further, the regime of sanctions as proposed in article 31 is unacceptable. The
lending policy is monitored by the national supervisory authorities. If the
consumer or the lender fail to comply with their obligations from the credit
agreement, the civil law of the Member States provides sufficient mechanisms.
Annual percentage rate of charge

Whereas the current directive provides for one annual percentage rate (APR), the
new proposal introduces two rates, the annual percentage rate of charge (APRC)
– article 12 and the total lending rate – article 13). Two rates would only confuse
consumers and would in no way lead to a better comparability of offers.
Therefore, only the total lending rate – article 13 – should be maintained. It
would only lead to estimations on the part of the lender if he would have to
include costs from third parties, i.e. insurance premiums, as proposed in the new
APRC and therefore the consumer has no added value.
Data protection

The stipulations in article 7 and 8 would make any credit management as well as
customer promotion extremely difficult because it limits the processing of
personal data to the assessment of the financial situation of the consumer and
his ability to repay.

The stipulation in article 8 (3) that personal data must be destroyed once the
credit agreement has been concluded is unacceptable because the lender could
not prove the fulfilling of the obligations stipulated in the directive, i.e. the duty
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European Association of Public Banks
- European Association of Public Banks and Funding Agencies -
of advise in article 8 (3), if it were to destroy all data after the credit has been
granted.

Finally, provisions on data protection should be regulated in the data protection
directive.
Minimum harmonisation

The EAPB strongly opposes the principle of total harmonisation introduced by
article 30 (1) of the proposal. As the proposal demonstrates, total harmonisation
entails extensive provisions and requirements on all aspects of the consumer
credit, by introducing the highest level in any Member States. By doing so, the
consumer credit will become overregulated with the consequence that credit
costs will rise significantly and many products will disappear from the market, as
there exists a risk of product harmonisation. This would also be to the detriment
of the consumer, because the requirements for the granting of a credit will be
increased and the choice of credit types will be limited.
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