# IMMC.EESC-2021-03601-AC.ENG.xhtml.EESC-2021-03601-00-00-AC-TRA-EN.docx

| OPINION |
| --- |
| European Economic and Social Committee |
| Consumer credit agreements |
| _____________ |
| Proposal for a Directive of the European Parliament and of the Council on consumer credits

  [COM(2021) 347 final – 2021/0171 (COD)] |
| |
| INT/956 |
| |
| Rapporteur: Bogdan PREDA |

OPINION

European Economic and Social Committee

Consumer credit agreements

_____________

Proposal for a Directive of the European Parliament and of the Council on consumer credits

  [COM(2021) 347 final – 2021/0171 (COD)]

INT/956

Rapporteur: Bogdan PREDA

EN

Referral

| Referral | European Parliament, 08/07/2021


  Council, 14/07/2021 |
| --- | --- |
| Legal basis | Article 114(1) of the Treaty on the Functioning of the European Union |
| Section responsible | Single Market, Production and Consumption |
| Adopted in section | 30/09/2021 |
| Adopted at plenary | 21/10/2021 |
| Plenary session No | 564 |
| Outcome of vote
  (for/against/abstentions) | 159/5/16 |

Referral

European Parliament, 08/07/2021

European Parliament, 08/07/2021

Council, 14/07/2021

Council, 14/07/2021

Legal basis

Legal basis

Article 114(1) of the Treaty on the Functioning of the European Union

Article 114(1) of the Treaty on the Functioning of the European Union

Section responsible

Section responsible

Single Market, Production and Consumption

Single Market, Production and Consumption

Adopted in section

Adopted in section

30/09/2021

30/09/2021

Adopted at plenary

Adopted at plenary

21/10/2021

21/10/2021

Plenary session No

Plenary session No

564

564

Outcome of vote
  (for/against/abstentions)

Outcome of vote
  (for/against/abstentions)

159/5/16

159/5/16

1.Conclusions and recommendations

1.

Conclusions and recommendations

1.1.The European Economic and Social Committee (EESC) welcomes this update to the legislation on consumer lending, but points out that there are still areas where the Directive should be more ambitious or does not ensure the proper balance between its objectives and the proposed solutions. Furthermore, the EESC considers that the solutions provided by the Directive should focus more on the impact of digitalisation, the increase in the use of digital devices and the provision of green consumer loans to help consumers make more sustainable purchases.

1.1.

The European Economic and Social Committee (EESC) welcomes this update to the legislation on consumer lending, but points out that there are still areas where the Directive should be more ambitious or does not ensure the proper balance between its objectives and the proposed solutions. Furthermore, the EESC considers that the solutions provided by the Directive should focus more on the impact of digitalisation, the increase in the use of digital devices and the provision of green consumer loans to help consumers make more sustainable purchases.

1.2.The EESC appreciates the efforts of the European Commission to encourage financial education/digital literacy campaigns, as such endeavours can only bring benefits for consumers and lenders.

1.2.

The EESC appreciates the efforts of the European Commission to encourage financial education/digital literacy campaigns, as such endeavours can only bring benefits for consumers and lenders.

1.3.The EESC notes that from the evidence relating to origins of over-indebtedness, setting caps on the costs of a loan to avoid extreme pricing practices delivers tangible benefits to vulnerable consumers, provided that such cap is correctly calibrated after careful analysis of the market and the potential further impact. Thus, the EESC notes that the Consumer Credit Directive (CCD) should provide a clear and harmonised methodology that Member States should consider in order to apply such caps to prevent and discourage extreme practices that could lead to over-indebtedness. This would also ensure a level playing field for lenders from different countries.

1.3.

The EESC notes that from the evidence relating to origins of over-indebtedness, setting caps on the costs of a loan to avoid extreme pricing practices delivers tangible benefits to vulnerable consumers, provided that such cap is correctly calibrated after careful analysis of the market and the potential further impact. Thus, the EESC notes that the Consumer Credit Directive (CCD) should provide a clear and harmonised methodology that Member States should consider in order to apply such caps to prevent and discourage extreme practices that could lead to over-indebtedness. This would also ensure a level playing field for lenders from different countries.

1.4.The EESC considers it beneficial to further detail the obligation of all lenders to carry out a thorough assessment of the creditworthiness of consumers. In this respect, the EESC endorses the Commission's approach regarding the type of data to be used in the creditworthiness assessment, including the exception concerning sensitive personal data such as health data, as it is very important to ensure a balanced approach within the process. However, it is of the utmost importance to stress in the Directive that not even a thorough creditworthiness assessment can guarantee the repayment of the loan.

1.4.

The EESC considers it beneficial to further detail the obligation of all lenders to carry out a thorough assessment of the creditworthiness of consumers. In this respect, the EESC endorses the Commission's approach regarding the type of data to be used in the creditworthiness assessment, including the exception concerning sensitive personal data such as health data, as it is very important to ensure a balanced approach within the process. However, it is of the utmost importance to stress in the Directive that not even a thorough creditworthiness assessment can guarantee the repayment of the loan.

1.5.The EESC considers that the CCD text should be revised so as to ensure equal treatment for all lenders, from the authorisation/licensing process to the operating regulations/obligations, so as to ensure a level playing field for all competitors.

1.5.

The EESC considers that the CCD text should be revised so as to ensure equal treatment for all lenders, from the authorisation/licensing process to the operating regulations/obligations, so as to ensure a level playing field for all competitors.

1.6.The EESC considers that the Commission should further analyse the obligations relating to pre‐contractual information so as to find the proper balance between the need for and relevance of the information for consumers and the most efficient and flexible way of presenting it, while also considering the digitalisation of the whole process.

1.6.

The EESC considers that the Commission should further analyse the obligations relating to pre‐contractual information so as to find the proper balance between the need for and relevance of the information for consumers and the most efficient and flexible way of presenting it, while also considering the digitalisation of the whole process.

1.7.The EESC recommends that the Commission clarify the text of the CCD concerning early reimbursement.

1.7.

The EESC recommends that the Commission clarify the text of the CCD concerning early reimbursement.

2.Introduction

2.1This opinion relates to the European Commission's proposal for a Directive on consumer credits, repealing the Directive 2008/48/EC on credit agreements for consumers.

2.2As set out in the Explanatory Memorandum, the need for the new Directive is justified by the fact that, since 2008, digitalisation has increased and profoundly changed both the lending habits (e.g. new ways of disclosing information digitally, assessing creditworthiness using automated decision-making systems and non-traditional data) and the profile of lenders. In the context of the COVID-19 crisis, it has also become necessary to offer legislative tools to alleviate the financial burden on more financially vulnerable citizens and households.

3.General comments

3.1The EESC welcomes the Commission's initiative to update the legal framework regarding consumer credits, as the market has indeed evolved since 2008 and the current provisions do not properly cover all types of players/products, meaning that there are areas where there is no proper protection for the consumers or where the existing rules can be improved.

3.2The EESC considers that the two main objectives in drafting the CCD, namely (i) reducing the detriment to consumers taking out loans in a changing market and (ii) facilitating cross-border provision of consumer credit and the competitiveness of the internal market, are closely interconnected and are essential for ensuring a proper level of coverage and uniform application of the new Directive. For instance, a proposal to impose mandatory caps on consumer credit costs needs to be further detailed and harmonised in the Consumer Credit Directive (CCD) with a clear methodology. This is necessary to guarantee a uniform level of protection for consumers, effectively preventing irresponsible lending practices across the EU and the development of consumer credit products with usurious rates or excessive costs, which often target the most vulnerable consumers and can often lead to situations of over-indebtedness. Such harmonized methodology is also necessary in order to ensure a level playing field for lenders from different countries.

3.3Extending the application of the Directive and clarifying the definitions of several terms can only bring benefits to consumers and lenders alike, as well as offering more clarity on the related rights and obligations. Moreover, the EESC considers that the proposal to establish an obligation on Member States to provide independent debt advice services for over-indebted or other vulnerable consumers should also help consumers in difficult situations. The EESC furthermore kindly suggests that the Directive encourage lenders to adopt policies facilitating the early detection of financial difficulties, that will also include provisions on forbearance measures. Both actions would prevent situations of over-indebtedness and encourage creditors to find solutions for distressed borrowers.

3.4The EESC appreciates the Commission's efforts to encourage financial education/digital literacy initiatives to ensure that consumers properly understand lending products and the risks they are assuming when taking a loan, as this is the most efficient method for maintaining their financial health. In this respect, the EESC considers that the text of the Directive concerning communication between lenders and consumers, at all stages of the relationship, should be adjusted to accommodate the digital transition and the increase in the use of digital devices.

3.5The EESC also appreciates the Commission's efforts to provide clear regulations on financial advisory services regarding loan agreements, but would welcome a clear legal perspective on how such services can be offered.

3.6The EESC welcomes the initiative to further detail the obligation of all lenders to carry out a thorough assessment of the creditworthiness of consumers, in order to verify whether they can afford the loans in question and whether their financial needs are being protected, while preventing irresponsible lending practices and over-indebtedness. However, the Commission should keep in mind that the new rules cannot and should not shift responsibility for consumers' actual payment performance onto lenders, as consumers must make their best efforts to meet their debt repayment obligations and to manage their personal expenditure cautiously. The EESC invites the Commission to further analyse the text of the CCD so as to make it clear that a thorough creditworthiness assessment is not a guarantee for repayment of the loan. Moreover, in order to ensure that consumers are properly protected, the EESC invites the Commission to further detail the situations where, in specific and well-justified circumstances, lenders have the right, without any obligation in this respect, to grant loans to consumers even though they do not pass the creditworthiness assessment.

4.Specific observations

4.1The EESC invites the Commission to further analyse some of the new definitions so as to ensure the clarity of the text. For example, the definition of a creditor should be revised in order to ensure that all lending businesses are covered by the scope of the Directive and equally supervised/licensed when they conduct the same type of activity. Moreover, for the purpose of ensuring a level playing field and effectively providing consumers with the same level of protection, all lenders, regardless of their legal company status, should apply the same rules and be subject to the same obligations, including with regard to reporting, except in the case of loans free of any charge provided that all provisions aimed at consumer protection have been complied with.

4.2Regarding the obligations arising from the activity of consumer lending, the Directive should be more ambitious, establishing that such lending activity requires an authorisation/licence from the competent authority so as to ensure proper consumer protection, effective monitoring, and a level playing field for consumer lending. The system currently proposed seems to be a hybrid between authorisation and registration, although it is not at all clear.

4.3Regarding the specific provision on the conversion of loans expressed in euro into the national currency, the EESC invites the Commission to further revise Article 4 of the CCD so as to clarify its applicability. The solution proposed, in addition to not being aligned with Article 23 of Directive 2014/17/EU on credit agreements for consumers relating to residential immovable property, lacks clarity on its intent/applicability and on the actual methodology proposed for conversion.

4.4As regards the non-discrimination principle (Article 6 of the CCD), the EESC is concerned that it might be very difficult to implement it for a number of reasons pertaining mostly to different requirements at national level and the difficulty of obtaining all the verifications needed as part of the creditworthiness assessment process. Regarding access to databases, the EESC fears that, in certain circumstances, it might be impractical or uneconomic for creditors to have direct access to databases from other Member States, for a number of reasons (e.g. lack of demand for cross-border credit, different requirements at national level and the difficulty of obtaining all the verifications within the creditworthiness assessment process). Therefore, the EESC invites the Commission to further analyse the principle, including by considering indirect access to such databases, e.g. lenders requesting the documentation required for creditworthiness assessments via their local database or local fiscal authorities.

4.5Concerning the national reporting databases, the EESC notes that the treatment of credit data during the COVID-19 pandemic or any similar exceptional situation could potentially impact the integrity of the credit reporting system and ultimately the provision of consumer credit. Therefore, the EESC calls on the Commission to stress in the CCD the importance of the continued full sharing of credit information, including reporting of missed payment data/moratoria during a crisis, as in normal times. Moreover, in line with the EBA guidelines on loan origination, the EESC also recommends that the Commission specify that the reporting databases should hold at least information on consumers' repayment behaviour on their existing loan agreements, including any arrears.

4.6The EESC appreciates the Commission's efforts to make precontractual information more accessible to the consumers. However, in the EESC's opinion, the appropriate solution should not be to create an additional document – the Standard Credit Overview – as it may result in an additional burden for both consumers and creditors, and might be misleading for consumers, in the sense that they might limit their analysis only to the information provided in the overview, without properly considering all the other information set out in the Standard European Consumer Credit Information form (SECCIF). A better solution would be to consider, in light of the need to respond to new digital methods, simplifying the process of establishing (and carrying out) the relationship with consumers, including by specifically providing for digital ways of fulfilling the obligation to deliver the SECCIF.

4.7With regard to the exemption from the tying and bundling rules relating to current or saving accounts, it is highly questionable whether it is in fact in the interest of the consumer to limit this exemption only to accounts whose only purpose is limited to the requirements of the loans. According to the text, lenders should forbid consumers from using the accounts in question for personal purposes, outside the requirements of the loan. The EESC agrees that the consumer should not be forced to open an account that is not needed for the deployment/reimbursement of the loan, but such an account, once opened, should be used by the consumer as they deem appropriate.

4.8On the rights of consumers where the creditworthiness assessment involves the use of profiling or other automated processing of personal data, in the EESC's opinion the solution proposed presents the risks of compromising the ability of financial institutions to establish assessment conditions in line with their own risk appetite, thus diminishing the flexibility of the process. In our opinion, the whole of Article 18(6) should be rephrased in line with GDPR requirements, meaning that the consumer has the rights granted by the GDPR when the creditworthiness assessment is performed exclusively automatically and produces effects concerning a private individual.

4.9The EESC believes that the early repayment of loans is a central provision within the Directive as it is aimed at promoting market competitiveness and affecting over-indebtedness situations and it appreciates the general intentions of the proposal. However, the EESC stresses that it is necessary that the text of the CCD be revised in order to (i) truly facilitate the exercise of this right and (ii) avoid the litigations that have occurred over the definition of ''all costs''.

4.10The EESC notes that from the evidence relating to origins of over-indebtedness, setting caps on the costs of a loan in order to avoid extreme pricing practices delivers tangible benefits to vulnerable consumers, provided that such caps are correctly calibrated after careful analysis of the market and the potential impact. Such an approach should ensure that the measures are indeed beneficial to consumers while avoiding opposite effects.

4.11In line with the latest directive on the consumer protection front, Article 44 of the CCD specifies that Member States must introduce effective, proportionate and dissuasive sanctions into national law in case of violation of the transposition rules of the directive. The EESC welcomes such provisions, but asks the Commission to also state in the Directive that administrative sanctions do not affect consumers' rights to obtain compensation or reimbursement, as the case may be.

Brussels, 21 October 2021

Christa Schweng

  President of the European Economic and Social Committee

*


  *
     *

N.B.: Appendix overleaf.

APPENDIX
  to the OPINION
  of the European Economic and Social Committee

The following section opinion texts were rejected in favour of amendments adopted by the Assembly but obtained at least a quarter of the votes cast:

AMENDMENT 2

| AMENDMENT 2



  INT/956


  Consumer credit agreements



  Point 4.1



  Amend as follows: | Tabled by:


  TEDER Reet |
| --- | --- |

INT/956

Consumer credit agreements

Point 4.1

Amend as follows:

Tabled by:

TEDER Reet

Section opinion

| Section opinion | Amendment |
| --- | --- |
| The EESC invites the Commission to further analyse some of the new definitions so as to ensure the clarity of the text. For example, the definition of a creditor should be revised in order to ensure that all lending businesses are covered by the scope of the Directive and equally supervised/licensed when they conduct the same type of activity. Moreover, for the purpose of ensuring a level playing field and effectively providing consumers with the same level of protection, all lenders, regardless of their legal company status, should apply the same rules and be subject to the same obligations, including with regard to reporting. | The EESC invites the Commission to further analyse some of the new definitions so as to ensure the clarity of the text. For example, the definition of a creditor should be revised in order to ensure that all lending businesses are covered by the scope of the Directive and equally supervised/licensed when they conduct the same type of activity. Moreover, for the purpose of ensuring a level playing field and effectively providing consumers with the same level of protection, all lenders, regardless of their legal company status, should apply the same rules and be subject to the same obligations, including with regard to reporting, except in the case of loans free of any charge provided that all provisions aimed at consumer protection have been complied with. |

Amendment

The EESC invites the Commission to further analyse some of the new definitions so as to ensure the clarity of the text. For example, the definition of a creditor should be revised in order to ensure that all lending businesses are covered by the scope of the Directive and equally supervised/licensed when they conduct the same type of activity. Moreover, for the purpose of ensuring a level playing field and effectively providing consumers with the same level of protection, all lenders, regardless of their legal company status, should apply the same rules and be subject to the same obligations, including with regard to reporting.

The EESC invites the Commission to further analyse some of the new definitions so as to ensure the clarity of the text. For example, the definition of a creditor should be revised in order to ensure that all lending businesses are covered by the scope of the Directive and equally supervised/licensed when they conduct the same type of activity. Moreover, for the purpose of ensuring a level playing field and effectively providing consumers with the same level of protection, all lenders, regardless of their legal company status, should apply the same rules and be subject to the same obligations, including with regard to reporting, except in the case of loans free of any charge provided that all provisions aimed at consumer protection have been complied with.

Outcome of the vote:

For:
     
     88

Against:
     79

Abstentions:
     21

COMPROMISE ON AMENDMENT 3

| COMPROMISE ON AMENDMENT 3



  INT/956


  Consumer credit agreements



  Point 4.10 | Tabled by:


  PREDA Bogdan |
| --- | --- |

INT/956

Consumer credit agreements

Point 4.10

Tabled by:

PREDA Bogdan

Section opinion

| Section opinion | Compromise |
| --- | --- |
| The EESC notes that from the evidence relating to origins of over-indebtedness, it is clear that caps on the costs of a loan deliver tangible benefits to consumers, especially vulnerable ones. | The EESC notes that from the evidence relating to origins of over-indebtedness, setting caps on the costs of a loan in order to avoid extreme pricing practices delivers tangible benefits to vulnerable consumers, provided that such caps are correctly calibrated after careful analysis of the market and the potential impact. Such an approach should ensure that the measures are indeed beneficial to consumers while avoiding opposite effects. |

Compromise

The EESC notes that from the evidence relating to origins of over-indebtedness, it is clear that caps on the costs of a loan deliver tangible benefits to consumers, especially vulnerable ones.

The EESC notes that from the evidence relating to origins of over-indebtedness, setting caps on the costs of a loan in order to avoid extreme pricing practices delivers tangible benefits to vulnerable consumers, provided that such caps are correctly calibrated after careful analysis of the market and the potential impact. Such an approach should ensure that the measures are indeed beneficial to consumers while avoiding opposite effects.

Outcome of the vote:

For:
     
     82

Against:
     79

Abstentions:
     17

COMPROMISE ON AMENDMENT 4

| COMPROMISE ON AMENDMENT 4



  INT/956


  Consumer credit agreements



  Point 1.3 | Tabled by:


  PREDA Bogdan |
| --- | --- |

INT/956

Consumer credit agreements

Point 1.3

Tabled by:

PREDA Bogdan

Section opinion

| Section opinion | Compromise |
| --- | --- |
| The EESC notes that from the evidence relating to origins of over-indebtedness, it is clear that caps on the costs of a loan deliver tangible benefits to consumers, especially vulnerable ones. However, a proposal to impose caps on consumer credit costs needs to be further detailed and harmonised in the Consumer Credit Directive (CCD) within a clear methodology, in order to ensure a level playing field for lenders from different countries. | The EESC notes that from the evidence relating to origins of over-indebtedness, setting caps on the costs of a loan to avoid extreme pricing practices delivers tangible benefits to vulnerable consumers, provided that such cap is correctly calibrated after careful analysis of the market and the potential further impact. Thus, the EESC notes that the Consumer Credit Directive (CCD) should provide a clear and harmonised methodology that Member States should consider in order to apply such caps to prevent and discourage extreme practices that could lead to over-indebtedness. This would also ensure a level playing field for lenders from different countries. |

Compromise

The EESC notes that from the evidence relating to origins of over-indebtedness, it is clear that caps on the costs of a loan deliver tangible benefits to consumers, especially vulnerable ones. However, a proposal to impose caps on consumer credit costs needs to be further detailed and harmonised in the Consumer Credit Directive (CCD) within a clear methodology, in order to ensure a level playing field for lenders from different countries.

The EESC notes that from the evidence relating to origins of over-indebtedness, setting caps on the costs of a loan to avoid extreme pricing practices delivers tangible benefits to vulnerable consumers, provided that such cap is correctly calibrated after careful analysis of the market and the potential further impact. Thus, the EESC notes that the Consumer Credit Directive (CCD) should provide a clear and harmonised methodology that Member States should consider in order to apply such caps to prevent and discourage extreme practices that could lead to over-indebtedness. This would also ensure a level playing field for lenders from different countries.

Outcome of the vote:

For:
     
     88

Against:
     77

Abstentions:
     15

_____________