The Consumer Credit Directive in 20 bullet points and how it affects Fintech.

Why was this Consumer Credit Directive necessary?

1. The unclear wording of the previous Directive (Directive 2008/48/EC) allowed each EU country to regulate this matter in different ways. The rise of cross-border transactions required a single, harmonised set of rules to protect consumers.
2. The Directive was necessary because almost all Fintechs were unregulated by the Bank of Spain and granted consumer loans.
3. In recent years, online credit has grown exponentially and a huge range of new credit contracts have emerged and proliferated in the market.

What are credit intermediaries and how does this Directive affect them?

Natural or legal persons who, in the course of their trade, business or profession, in return for remuneration, offer or propose consumer credit agreements, assist consumers in the pre-processing of credit agreements or conclude credit agreements with consumers on behalf of the creditor.

The provisions relating to financial intermediaries apply to them.

In particular, pre-contractual information requirements should also apply to credit intermediaries.

How is the advertising of credit agreements regulated? Advertising of credit agreements in 10 bullet points

1. Such basic information should be provided in a clear, concise and prominent manner, with a representative example.
2. The total amount of credit and the duration of repayment chosen by the creditor for such a representative example should correspond as far as possible to the characteristics of the credit agreement advertised by the creditor.
3. Basic information should be displayed early and conspicuously, clearly and in an attractive format.
4. It must be clearly legible and adapted to take into account the technical limitations of certain media, such as mobile phone screens.
5. In digital channels, some of the basic information in the representative example could be provided by clicking, scrolling or swiping.
6. Before accessing credit offers, consumers should be presented with all the basic information that should be included in advertising concerning credit agreements, including in the case of click, scroll or swipe.
7. The basic information should also be clearly delineated from any additional information relating to the credit agreement.
8. Temporary promotional conditions, such as reduced introductory interest rates for the first months of the credit agreement, should be clearly identified as such.
9. Consumers should be able to see all essential information at a glance, even when looking at it on a mobile phone screen.
10. The telephone number and e-mail address of the creditor and, where applicable, of the credit intermediary should also be communicated to the consumer so that the consumer can contact the creditor or credit intermediary quickly and efficiently.

The Consumer Credit Directive in 20 bulletpoints

1. The Directive enters into force on 19 November 2023 and Member States must transpose it into national law by 19 November 2025.

2. The Directive extends the scope of Directive 2008/48/EC to include the following contracts:

• Providers of equity finance credit services, where they provide credit directly to consumers, should apply the provisions of this Directive relating to creditors.
• Credit agreements relating to equity financing credit services where they intermediate the granting of credit between creditors acting in the course of their trade, business or profession and consumers and shall be considered as credit intermediaries.
• Buy Now, Pay Later Contracts, except where it gives the consumer time to pay for the goods or services without interest and without any other cost except for limited charges due for late payments and required under national law
• Real estate credit contracts with a value of less than 200,000 euros.
• Credit agreements for the purchase of new or used vehicles, with a value of less than 75,000 euros.
• Credit agreements for the financing of studies or vocational training, with an amount of less than 75,000 euros.
• Credit contracts for the financing of repairs or improvements to the habitual residence, with an amount of less than 75,000 euros.
• Consumer credit contracts of less than 200 euros.
• Rental or leasing contracts with an option to purchase.
• Credit agreements in the form of overdraft facilities.
• Contracts where the credit has to be repaid within one month.
• Credit agreements where credit is granted free of interest and at no other cost.
• Credit agreements under whose terms the credit has to be repaid within three months and for which only minimal charges are payable.

3. including unsolicited pre-approved credit cards sent to consumers.

4. The Directive requires creditors to provide pre-contractual information to the consumer through the Standard European Consumer Credit Information form. This information must be clear and comprehensible before the consumer commits himself to the credit agreement. This information should include at least the following elements:

• The total amount of credit, including interest, commission and other costs.
• The nominal interest rate and the effective interest rate.
• The amount of the monthly instalments.
• The repayment period of the loan.
• The rights and obligations of the consumer and the creditor.

5. The annual percentage rate of charge for the credit, calculated in the same way throughout the Union.

6. The total cost of the credit to the consumer should include all costs, including interest, commissions, taxes, remuneration of credit intermediaries and any other charges payable by the consumer in connection with the credit agreement, with the exception of notarial costs. The creditor’s actual knowledge of the costs should be assessed objectively.

7. The Directive requires creditors to provide the consumer with a copy of the credit agreement signed at the time of conclusion of the agreement. The terms of the agreement must be in a durable medium, including paper and interoperable, portable and machine-readable digital versions of the documents, the information must be addressed personally to the consumer, it must enable the consumer to keep it in a form that is easily retrievable in the future for a period of time suited to his purposes.

8. It should not be possible to presume the consumer’s consent to the conclusion of credit agreements or the purchase of ancillary services. Such consent on the part of the consumer should be expressed by a clear affirmative act which expresses the consumer’s free, specific, informed and unambiguous acceptance. Silence, inaction or a default option (such as, for example, boxes already ticked) should therefore not constitute consent by the consumer.

9. The Directive requires creditors to provide consumers with information on out-of-court consumer dispute resolution services.

10. The Directive requires creditors to carry out an assessment of the consumer’s creditworthiness before granting credit. This assessment must take into account at least the following factors:

• Consumer income and expenditure.
• The consumer’s assets.
• The consumer’s ability to assume the risks associated with credit.

Where the creditworthiness assessment involves automated processing (e.g. AI systems used to assess credit rating), the consumer should be entitled to obtain human intervention by the creditor.

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11. The Directive provides for a cooling-off period of 14 calendar days, during which the consumer may withdraw from the credit agreement without penalty.

12. Where pre-contractual information is provided less than one day before the consumer is bound by any credit agreement or offer, the creditor and, where applicable, the credit intermediary must remind the consumer, between one and seven days after the conclusion of the credit agreement or, where applicable, the consumer’s submission of the binding credit offer, of the possibility of withdrawing from the credit agreement

13. The unsolicited granting of credit, including unsolicited pre-approved credit cards sent to consumers, is prohibited.

14. The unsolicited granting of credit in the form of off-premises contracts should also be prohibited.

15. The Directive prohibits the unilateral introduction of a new overdraft facility or tacit overdraft facility or the unilateral increase of the consumer’s overdraft, tacit overdraft or credit card limit.

16. The Directive requires creditors to inform the consumer of any change in the terms of the credit agreement at least 30 days in advance.

17. In addition, the Directive requires creditors to provide the consumer with information (1) on the options for refinancing the credit, (2) on the options for terminating the credit agreement and (3) on the options for enforcing the consumer’s rights.

18. The Directive provides for a number of measures to protect the most vulnerable consumers, such as consumers with financial difficulties or consumers with mental health problems.

19. In order to provide consumers who have overcome cancer with equal access to insurance linked to credit agreements, Member States should require that insurance policies should not be based on personal data relating to the diagnosis of oncological diseases of consumers after a relevant period of time following the end of the medical treatment of the consumer. This period of time determined by Member States should not exceed 15 years from the end of the consumer’s medical treatment.

20. The Directive establishes a framework for cooperation between the competent national authorities of the Member States.

• The Directive requires Member States to take the necessary measures to ensure the implementation of the Directive.
• The Directive will apply to credit agreements concluded in a Member State of the European Union, irrespective of the place of residence of the consumer or the creditor.
• The Directive applies to credit agreements concluded by consumers, irrespective of their nationality.

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