Recent regulatory developments of interest to financial institutions with focus on consumer finance. This week reports on the European Commission's review of the Consumer Credit Directive.
- CCD review: European Commission inception impact assessment
CCD review: European Commission inception impact assessment
The European Commission has published an inception impact assessment following its review of the Consumer Credit Directive (CCD). It is open for comments until 1 September 2020.
The findings of the Commission's review are due to be published in summer 2020, however, the Commission states that broadly it found that the CCD does not fully achieve its objectives. Problems with the CCD summarised in the inception impact assessment include:
- inadequate scope: the emergence of new operators (e.g. peer-to-peer lending platforms and other non-bank providers) and new forms of consumer credit (e.g. short-term, high-cost loans and instant microloans, often below the €200 threshold for loans to be covered by the Directive) create new challenges for effective consumer protection. Some new products can entice people to take on unsuitable financial commitments that lead to over-indebtedness. As these new types of credit may fall outside its scope, the CCD is sometimes ineffective in protecting consumers from these new trends;
- content and disclosure of information: the requirements for providing information in advertising and at the pre-contractual stage do not reflect the growing use of digital devices in credit contracts. Also, some credit providers' practices (e.g. pre-ticked boxes and making credit products available by means of a single click) may exploit behavioural biases to nudge consumers into making unhelpful choices. The information provided to consumers in accordance with the CCD is often too complex to be understood;
- insufficient safeguards to ensure responsible lending/borrowing: the vagueness of the provisions on assessing creditworthiness can allow for credit to be granted without thorough assessment of a consumer's ability to repay. It also leads to divergence among member states; and
- exceptional situations: the CCD does not contain provisions (such as hardship clauses, forbearance, etc.) to protect lenders' and borrowers' interests in the event of exceptional and systemic economic disruption, such as that caused by COVID-19.
Against this background, the Commission has decided to review the CCD in line with its "better regulation" principles and is included in its 2020 work programme. The Commission expects its work to result in a proposal to amend the CCD, which it anticipates will be published in Q2 2021.