2. Background Information
Background
Directive 2008/48/EC, more commonly referred to as the Consumer Credit Directive (CCD1), was adopted in 2008 and established a harmonised EU framework for consumer credit, to facilitate the emergence of a smoothly functioning internal market in consumer credit and provide a high degree of consumer protection to underpin consumer confidence.
A European Commission evaluation in 2018 and 2019 identified that the CCD1 objectives of ensuring high standards of consumer protection and fostering the development of an internal market had been hampered by the fragmented regulatory landscape across the Union. The imprecise wording of some CCD1 provisions hindered the smooth functioning of the internal market for consumer credit and did not deliver the required standard of consumer protection.
Since the adoption of the CCD1, digitalisation has profoundly changed the behaviours and decisions of consumers. Prospective borrowers now want a rapid and uncomplicated process for obtaining credit, often online. Lenders have evolved to these changes and are increasingly offering digitalised services. New market players are offering credit agreements under different arrangements. New products, such as short-term high-cost credit, have appeared. Digitalisation has also brought new ways of disclosing information digitally and assessing the creditworthiness of consumers using automated decision-making systems and non-traditional data.
Following this evaluation process, the European Commission decided to replace the existing CCD1 by proposing a revised version in June 2021 with new enhanced provisions combined with the many of the original elements.
Among the changes brought up by the revision is the significant extension of the scope of the directive. It now covers loans up to €100,000 and no longer exempts credit agreements below €200. Concerning “deferred payments”, they will not be considered as credits if (i) they are offered without a third-party offering credits, (ii) they are free of interest without charge (except for late payments), and finally, (iii) if the deferred payment is entirely excluded within 50 days of the delivery of the good. Different rules will apply to all large companies, that do not qualify as SMEs under the EU law, selling goods and services online. They will be exempted if (i) a third party is neither offering nor purchasing credit, (ii) the payment is executed within 14 days of delivery, and (iii) it is done with no interest or free.
Under the new rules, the information requirements have also been adapted to ensure they are appropriate for digital devices, and information free of charge will have to be provided to consumers. The CCD 2 also provides for more rules on a proper assessment of a consumer’s creditworthiness prior to offering credit. It includes stricter rules on advertising to reduce miss-selling to over-indebted consumers, including details on information that must be included, and banned practices. The text also lays down rules on what should be included in pre-contractual information and when it should be communicated. New measures also include caps on charges, to prevent abuse and ensure consumers cannot be charged excessive interest rates or annual rates. Finally, the CCD 2 will also grant consumers the right to withdraw from a credit agreement with no reason within 14 days of its signing.