Views on the Irish transposition of the Consumer Credit Directive 2

Klarna has consistently supported proportionate regulation for BNPL services, recognising the importance of safeguarding consumers while fostering innovation in the credit market. 

BNPL offers interest-free, short-term credit, making it an inherently lower-risk option compared to high-cost alternatives like interest-bearing credit cards or overdraft facilities. By offering consumers a flexible and transparent way to manage their payments without incurring interest charges, BNPL serves as a more affordable and responsible solution for short-term borrowing, helping to minimise the financial burdens associated with traditional forms of credit.

Fortunately, European co-legislators have empowered Member States to apply a proportionate regime to tailor obligations for certain credit types like BNPL, considering their limited risk to consumers. 

Klarna strongly encourages the Irish government to make use of the proportionate regime when it comes to advertising, pre contractual information in credit agreements and necessary information for making a creditworthiness assessment. 

As such,  short-term interest-free lenders should provide proportionate and relevant disclosures for advertising purposes. For example, the message ‘Borrowing costs money’, in the context of BNPL products that are short-term interest-free credits offered with no additional costs, is therefore not accurate. We believe that disclosures should provide consumers with necessary information, but not become a catch-all phrase providing consumers with a false sense of security, and instead allow providers to inform their consumers in a way that makes sense to the way they take their credit.

We encourage the same proportionate stance for pre-contractual information details, and request the assessment of creditworthiness to be carried out on the basis of information that is also proportionate to the “nature, duration, value, and risks of the credit for the consumer”.

(1) Consumer Credit Directive, Article 2(8).

(2) Consumer Credit Directive, Article 10. 

(3) Consumer Credit Directive, Article 2(8).

Creditworthiness assessments play an important role in preventing irresponsible lending practices and should take into consideration all necessary and relevant factors that could influence a consumer’s ability to repay the credit. At Klarna we already assess our customers' repayment abilities for every purchase. The CCD will make creditworthiness assessments mandatory, which will help improve industry standards. However, national lawmakers should align with the spirit of the text and implement these assessments proportionately, considering the "nature, duration, value, and risks of the credit for the consumer."

Here again, we believe national lawmakers mustn't be too prescriptive in order to allow for innovation and consumer access. It is not in consumers' best interest to request proof of income and expenses for low-value purchases. Asking consumers to disclose their income for a low  value purchase is not proportionate. If not implemented adequately, meaning overly extensive credit checks apply to short-term interest free credit this could create unintended consequences. In turn, driving consumers towards high-cost credit options. 

We would also like to emphasise the need for Member States to tackle issues that have only been partially addressed in the final agreement, mainly on matters related to access to and accuracy of credit databases. We further encourage reform of domestic credit scoring systems, such as the Central Credit Register, to be adequately equipped to reflect the short term nature of BNPL products, as well as exclude reporting of small loans (<€200). Failure of doing so can negatively impact consumers’ credit scores. This reform should happen in parallel to wider adoption of new sources of data facilitated by innovations such as Open Banking and Open Finance.

Overall, we expect the Irish Government to aim for harmonization of rules with other Member States as much as possible, to avoid uncertainty for providers that offer their services cross-border. Imposing additional rules at national level, could further fragment the objective of the CCD to provide consistent consumer protections across the European Union.