Proposal for a European Parliament and Council Directive amending Directive 87/102/EEC (as amended by Directive 90/88/EEC) relating to the approximation of the laws, regulations and administrative provisions of the Member States concerning consumer credit (96/C 235/05) (Text with EEA relevance) COM(96) 79 final - 96/0055(COD)

(Submitted by the Commission on 15 April 1996)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 100a thereof,

Having regard to the proposal from the Commission,

Having regard to the opinion of the Economic and Social Committee,

Acting in accordance with the procedure laid down in Article 189b of the Treaty,

Whereas it is desirable, in order to promote the establishment and functioning of the internal market and to ensure that consumers benefit from a high level of protection, that one method of calculating the annual percentage rate of charge should be used throughout the European Community,

Whereas Article 5 of Council Directive 87/102/EEC (1) provides for the introduction of a Community method or methods of calculating the annual percentage rate of charge for consumer credit;

Whereas, in order to introduce this single method, it is desirable to draw up a single mathematical formula for calculating the annual percentage rate of charge and for determining the credit cost items to be used in the calculation by indicating those costs which must not be taken into account,

Whereas Annex II to Directive 90/88/EEC (2) introduced a mathematical formula for the calculation of the annual percentage rate of charge and Article 1 (2) of Directive 90/88/EEC provided the charges to be excluded from the calculation of the 'total cost of credit to the consumer`,

Whereas during a transitional period of three years from 1 January 1993, Member States which prior to 1 March 1990 applied laws which permitted the use of another mathematical formula for calculating the annual percentage rate of charge, were permitted to continue to apply such laws,

Whereas the Commission has submitted a report (3) to the Council which makes it possible, in the light of experience, to apply a single Community mathematical formula for calculating the annual percentage rate of charge,

Whereas, since no Member State has made use of Article 1a (3) of the Directive by which certain costs were excluded from the calculation of the annual percentage rate of charge in certain Member State, it has become obsolete,

Whereas accuracy to two decimal places and the use of a 365 or 366 day year is necessary,

Whereas it is desirable that consumers should be able to recognize the terms used in different Member States to indicate the 'annual percentage rate of charge`, and that the use of a common symbol, in addition to the existing term, should be mandatory in all consumer credit advertisements and written agreements with consumers throughout the European Community,

HAVE ADOPTED THIS DIRECTIVE:

Article 1

Whenever the term 'annual percentage rate of charge`, or the equivalent term in another Community language, is used as required by Directive 87/102/EEC, it shall be accompanied by the following symbol:

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Article 2

Article 1a (1) (a) shall be replaced by the following:

- in the Greek language version of the Directive:

'Ôï óõíïëéêü åôÞóéï ðñáãìáôéêü ðïóïóôü åðéâÜñõíóçò ðïõ åîéóþíåé óå åôÞóéá âÜóç ôéò ðáñïýóåò áîßåò ôïõ óõíüëïõ ôùí ôñå÷ïõóþí Þ ìåëëïíôéêþí õðï÷ñåþóùí (äáíåßùí, åîïöëÞóåùí êáé åðéâáñýíóåùí) ðïõ Ý÷ïõí áíáëçöèåß áðü ôï äáíåéóôÞ êáé ôï (äáíåéæüìåíï) êáôáíáëùôÞ, õðïëïãßæåôáé óýìöùíá ìå ôïí ìáèçìáôéêü ôýðï ðïõ ðáñáôßèåôáé óôï ðáñÜñôçìá ÉÉ`,

- in the English language version of the Directive:

'The annual percentage rate of charge, which shall be that rate, on an annual basis which equalizes the present value of all commitments (loans, repayments and charges), future or existing, agreed by the creditor and the borrower, shall be calculated in accordance with the mathematical formula set out in Annex II.`

Article 3

Article 1a (3) shall be deleted.

Article 4

Article 1a (5) shall be deleted.

Article 5

Article 3 shall be amended as follows:

'Without prejudice to Council Directive 84/450/EEC of 10 September 1984 relating to the approximation of the laws, regulations and administrative provisions of the Member States concerning misleading advertising, as amended by Directive . . . of . . . 1996 concerning comparative advertising, and to the rules and principles applicable to unfair advertising, any advertisement, or any offer which is displayed at business premises, in which a person offers credit or offers to arrange a credit agreement and in which a rate of interest or any figures relating to the cost of the credit are indicated, shall also include a statement of the annual percentage rate of charge, accompanied by the symbol as mentioned in Article 1 of this Directive, by means of a representative example if no other means is practicable.`

Article 6

Article 4 (2) (a) shall be amended as follows:

'(a) a statement of the annual percentage rate of charge, accompanied by the symbol as mentioned in Article 1 of this Directive;`.

Article 7

Annex I attached hereto shall become Annex II, replacing Annex II to Directive 87/102/EEC (as amended by Directive 90/88/EEC).

Article 8

Annex II attached hereto shall become Annex III, replacing Annex III to Directive 87/102/EEC (as amended by Directive 90/88/EEC).

Article 9

1. Member States shall bring into force the laws, regulations and administrative provisions necessary for them to comply with this Directive no later than 31 December 1996 and shall inform the Commission thereof.

When Member States adopt those measures, they shall include references to this Directive or shall accompany them with such references on their official publication. The Member States shall lay down the manner in which such references shall be made.

2. The Member States shall communicate to the Commission the texts of the provisions of national law which they adopt in the field governed by this Directive.

Article 10

This Directive is addressed to the Member States.

(1) OJ No L 42, 12. 2. 1987, p. 48.

(2) OJ No L 61, 10. 3. 1990, p. 14.

(3) COM(96) 79 final.

ANNEX I

'ANNEX II

BASIC EQUATION

THE BASIC EQUATION EXPRESSING THE EQUIVALENCE OF LOANS ON THE ONE HAND AND REPAYMENTS AND CHARGES ON THE OTHER

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where:

K is the number of a loan,

K' is the number of a repayment or a payment of charges,

AK is the amount of loan number K,

A'K' is the amount of repayment number K',

Ó represents a sum,

m is the number of the last loan,

m' is the number of the last repayment or payment of charges,

tK is the interval, expressed in years and fractions of a year, between the date of loan No 1 and those of subsequent loans Nos 2 to m

tK' is the interval, expressed in years and fractions of a year, between the date of loan No 1 and those of repayments or payments of charges Nos 1 to m',

i is the percentage rate that can be calculated (either by algebra, by successive approximations, or by a computer programme) where the other terms in the equation are known from the contract or otherwise.

Remarks:

(a) The amounts paid by both parties at different times shall not necessarily be equal and shall not necessarily be paid at equal intervals

(b) The starting date shall be that of the first loan

(c) Intervals between dates used in the calculations shall be expressed in years or in fractions of a year. A year is presumed to have 365 or 366 days

(d) The result of the calculation shall be expressed with an accuracy of two decimal places. If the figure at the third decimal place is greater than or equal to 5, the figure at the second decimal place shall be increased by one.`

ANNEX II

'ANNEX III

EXAMPLES OF CALCULATION

First example

Sum loaned: S = ECU 1 000 on 1 January 1994.

It is repaid in single payment of ECU 1 200 made on 30 June 1995 (547 days after the date of the loan).

The equation becomes:

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or

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= 1,21 + i = 1,129444207 . . .

i = 0,129444207 . . .

This amount will be rounded to 12,94 %.

Second example

The sum loaned is S = ECU 1 000 but the creditor retains ECU 50 for administrative expenses, so that the loan is in fact ECU 950; the repayment of ECU 1 200, as in the first example, is again made on 30 June 1995.

The equation becomes:

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or

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1 + i = 1,1688996 . . .

i = 0,1688996 . . .

rounded to 16,89 %.

Third example

The sum loaned is ECU 1 000, repayable in two amounts, each of ECU 600, paid after one and two years respectively.

The equation becomes:

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It is solved by algebra and produces i = 0,1306623, rounded to 13,07 %.

Fourth example

The sum loaned is ECU 1 000, on 1 January 1994, and the amounts to be paid by the borrower are:

>TABLE>

The equation becomes:

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This equation allows i to be calculated by successive approximations, which can be programmed on a pocket calculator

The result is:

i = 0,13226, rounded to 13,23 %.`