No C 155/10 Official Journal of the European Communities 14. 6. 88 
II 
(Preparatory Acts) 
COMMISSION 
Proposal for a Council Directive amending Directive 87/102/EEC for the approximation of the 
laws, regulations and administrative provisions of the Member States concerning consumer 
credit 
COM(88) 201 final — SYN 132 
(Submitted by the Commission on 18 May 1988) 
(88/C 155/06) 
THE COUNCIL OF THE EUROPEAN COMMUNITIES, 
Having regard to the Treaty establishing the European 
Economic Community, and in particular Article 100A 
thereof, 
Having regard to the proposal from the Commission, 
In cooperation with the European Parliament, 
Having regard to the opinion of the Economic and 
Social Committee, 
Whereas it is desirable, in order to promote the estab­
lishment and functioning of the internal market and to 
safeguard its consumers at a high level of protection, 
that, despite the differences in development of certain 
economies, one method of calculating the annual 
percentage rate of charge for credit should be used 
throughout the Community; 
Whereas Article 5 of Council Directive 87/102/EEC (') 
anticipates the introduction of a Community method of 
calculating the annual percentage rate of charge for 
credit; 
Whereas it is desirable, as a first step towards the estab­
lishing of such a method, that an appropriate math­
ematical formula be laid down for the purpose of calcu­
lating the annual percentage rate of charge; whereas it is 
useful to adopt common rules concerning such a 
formula, although the cost items which will have to be 
taken into account in calculating the annual percentage 
rate of charge remain to be determined, HAS ADOPTED THIS DIRECTIVE: 
Article 1 
Council Directive 87/102/EEC is hereby amended as 
follows: 
1. In Article 1 (2) (e), the definition of 'annual 
percentage rate of charge' is replaced by the 
following: 
' "annual percentage rate of charge" means the total 
cost of the credit to the consumer, expressed as an 
annual percentage of the amount of the credit granted 
and calculated in accordance with Article la of this 
Directive.' 
2. The following Article la is inserted: 
Article la 
1. For the purpose of stating the annual percentage 
rate of charge for credit, the rate which equalizes the 
present values of the prospective or actual 
commitments of the lender and borrower shall be 
calculated in accordance with the method set out in 
Annex II. 
2. The annual percentage rate of charge shall be 
calculated at the time of concluding an agreement for 
credit. 
3. The use in a Member State of a method of 
calculation other than that shown in Annex II shall be 
allowed only if the resulting annual percentage rate of 
charge does not diverge by more than one tenth of 
one per cent from the rate of charge yielded by the 
method shown in the said Annex. 
4. In the case of credit on current account, the 
method of calculation shown in Annex II shall be 
applied on the basis of the assumptions set out in 
Annex III.' 
(') OJ No L 42, 12. 2. 1987, p. 48. 3. Article 5 of the said Directive is repealed. 
14. 6. 88 Official Journal of the European Communities NoC 155/11 
4. The Annex becomes Annex I. 
Annexes II and III in the Annex to this Directive are 
added. 
Article 2 
Member States shall take the necessary measures to 
comply with this Directive not later than 31 December 
1992 and shall forthwith inform the Commission thereof. Member States shall communicate to the Commission 
the texts of the main provisions of national law which 
they adopt in the field covered by this Directive. 
Article 3 
This Directive is addressed to the Member States. 
ANNEX 
'ANNEX II 
The method of calculation 
The general formula 
The lender advances a sum S. 
Borrower repays in n payments, numbered 1, 2, 3 ... tk 
These payments are not necessarily of equal amount, not are the 
intervals between them necessarily of equal length. The dates to 
be considered are the date of the loan and the dates of the 
repayments. 
Payment k is made tk years after the date of the loan 
(tk being not necessarily a full number). 
The effective annual rate is i. 
The equation which equalizes the present values of the loan and 
repayments by the borrower is as follows: 
n 
s = S 
n • Ak. 
(1 + 0 tk 
This enables i to be calculated provided the amounts of payments 
Ak are all known. 
Inversely, the amount of a repayment can be calculated in this 
way if one knows the amounts and dates of other repayments, 
and the effective annual rate i. A simple illustration 
S = 1 000 ECU 
Two repayments: 1 and 2 
(n - 2) 
of 600 ECU each. 
The payments are of equal amount. 
The payments are made at equal intervals, after one and two 
years, respectively 
(ti — 1 and t2 = 2). 
The effective annual rate is i. 
The equation then appears as follows: 
1000 -600 600 
(1 + 0 (1 + 0 Tl2 
The loan = the present value of the first payment plus the 
present value of the second payment. 
This is a quadratic equation with i, which can be solved by 
algebra: 
i - 0,1306623 ... 
This can be rounded off to i = 13,1 or 13,07 % depending on 
whether the State, or usage permits a margin of tolerance of 1 
or 2 decimal points. 
If the payment at the end of the first year was reduced from 600 
to 500 ECU, and if i was rounded off to 13,1 %, payment at 
the end of the second year would be 713,66 ECU (linear 
equation). 
No C 155/12 Official Journal of the European Communities 14. 6. 88 
ANNEX III 
Adaptation of the method of calculation shown in Annex I to the case of running account credit 
Where the annual percentage rate of charge is to be indicated in relation to an agreement for credit on a 
current account, the following assumptions shall be made: 
(a) the rate of interest does not change; 
(b) (i) if there is no fixed timetable for payment, the duration of the credit is one year; 
(ii) if there is a fixed timetable for payment, it is observed by the borrower; 
(c) (i) if the agreement specifies a credit limit, the credit granted is equal to that limit; 
(ii) if no credit limit is stated in the agreement, the credit granted is equal to the amount fixed by the 
relevant Member State, not exceeding 200 ECU; 
(d) unless otherwise specified, the credit is made available and the payments are made at the earliest 
moment provided for in the agreement.'