News

A new Consumer Credit Directive will come into force on 31 January 2011, imposing wider obligations on credit providers, thereby increasing consumer protection and ensuring that consumers are not exposed to greater debt than they can afford.

The Directive will not have retrospective effect, however, it may be considered best practice for credit providers to start complying with the Directive as soon as they can. Any credit agreement signed on or after 1 February 2011 will have to comply with the Directive.

The key changes arising from the Directive include:

• Pre-contractual Information 

  A duty on the credit provider to provide comprehensible information to the consumer regarding the credit on offer in good time before the credit agreement is concluded to allow the consumer to compare different offers of credit and to make an informed decision about which offer to choose.

• Creditworthiness 

  An obligation on the credit provider to check the creditworthiness of consumers before offering or increasing credit.

• Database Access

  A requirement for credit providers to allow credit providers in other EU Member States to have access to their databases in order to assess the creditworthiness of consumers.

• Information to be Included in Credit Agreements

  The Directive provides a comprehensive list of information to be included in all credit agreements.

  Consumers must be informed of any change in the borrowing rate before the change comes into force.

• Early Repayment and Termination

  A right for consumers to repay a credit agreement either fully or partially at any time. The consumer will be entitled to a reduction in the total cost of the credit agreement to reflect early repayment. The credit provider may be entitled to fair and objectively justified compensation for any costs relating to the early repayment.

  A right for consumers to terminate an open ended credit agreement at any time unless a notice period, not exceeding one month, has been agreed.

  A right for credit providers, if provided for in an open ended credit agreement, to provide two months notice of termination of the agreement or to terminate the agreement for objectively justified reasons.

• Right of Withdrawal

  A right for consumers to withdraw from a credit agreement within 14 days without giving any reason.

• Obligations of Credit Intermediaries

  An obligation for credit intermediaries i.e. brokers to disclose to consumers their relationship with any credit providers and any fees they receive in exchange for their services.

Steeles Law Commercial Solicitor Joanna Finney comments “The issue of consumer credit is widely discussed, particularly in this economic climate. Some EU Member States adopt a high regulatory standard; others do not. For example, the UK has in place the Consumer Credit Act 1974, which covers most aspects dealt with in the new Consumer Credit Directive (2008/48/EC) but which will require some amendment in order for it to fully comply. The Directive is designed to address a diverse regulatory environment across the EU and to create a “level playing field” in all Member States.”

For further information on the Consumer Credit Directive, or for the resolution of disputes between credit providers and consumers, contact Joanna Finney on 01603 598000 or jfinney@steeleslaw.co.uk.