EUROPEAN COMMISSION Brussels, 5.11.2020 SWD(2020) 254 final COMMISSION STAFF WORKING DOCUMENT



EVALUATION

of Directive 2008/48/EC on credit agreement for consumers {COM(2020) 963 final} - {SEC(2020) 371 final} - {SWD(2020) 255 final}



Table of contents 1.Introduction Overview of the Consumer Credit Directive’s provisions Purpose of the Evaluation Scope of the Evaluation 2.Background to the Directive Context of the EU intervention Intervention logic Baseline - the situation before interventions 3.Implementation / state of Play The consumer credit sector 2008-2019 4.Method Study to support the Directive evaluation Stakeholder consultations Experience Gained from the European Commission Consumer Financial Services Action Plan Literature review Robustness of the findings 5.Analysis and answers to the evaluation questions

Effectiveness EQ1 – To what extent has the Directive achieved its objectives? Have the scope of application and the definitions facilitated or hindered the achievement of the objectives? What are the main benefits and drawbacks of the Directive? EQ2 – To what extent has the Directive led to legal clarity? What is the level of compliance of businesses and their enforcement? EQ3 – Is the Directive – through advertising requirements, pre-contractual information (including Standardised European Consumer Credit Information and Annual Percentage Rate of Charge) and other additional information – ensuring that consumers are effectively provided with accurate, clear, concise, timely and comprehensive information free-of-charge? EQ4 – How have the provisions relating to creditworthiness assessments worked in practice? To what extent have the provision of the Annual Percentage Rate of Charge and the performance of a creditworthiness assessments contributed to helping consumers find the credit best suited to their needs and avoid over-indebtedness? EQ5 – To what extent do the conditions of access to credit databases on cross-border basis vary across the EU? EQ6 – How have the provisions relating to the rights of withdrawal and early repayment worked in practice? How frequently are consumers making use of them? EQ7 – Have the scope of application and the definitions used in the Directive succeeded in ensuring a high level of consumer protection and performance of the internal market for consumer credit? Efficiency EQ8 – What are the costs and benefits (including any reduction in consumer detriment) associated with the Directive and what are they influenced by? Can they be considered proportionate? EQ9 – To what extent are the provisions of the Directive cost-effective? Are there any provisions particularly hampering the maximisation of the benefits? EQ10 – Is there scope for simplification and burden reduction? What provisions or areas of the Directive could be simplified to reduce the burden on stakeholders without undermining the effectiveness of the Directive? Coherence EQ11 - To what extent is the Directive internally coherent? EQ12 – To what extent is the Directive coherent with other national-level consumer policy and legislation (including legislation going beyond the scope of the Directive, relevant for consumer credit)? EQ13 – To what extent is the Directive coherent and complementary with other relevant EU-level legislation? EQ14 - To what extent are the provisions of the Directive and their implementation at national level coherent with national and EU-level data protection legislation? Relevance EQ15 - Are the objectives of the Directive still relevant? Does the Directive address current and anticipated future needs and challenges (e.g. market developments, consumer behaviour and needs), including those of consumers and providers? EQ16 - How relevant and adapted are the scope, thresholds and definitions in the Directive to the current market situation?

EU added value EQ17 - Where does the EU added value of the Directive lie? Would the benefits delivered by the Directive have been achieved in the absence of EU-level intervention? 6.Conclusions and lessons learned Annex 1: Procedural information Annex 2: Stakeholder consultation – Synopsis Report Annex 3: Methods and Analytical models used in preparing the evaluation Annex 4: Key concepts and definitions Annex 5: Overview of the implementation of the Directive Annex 6: Coherence with other EU pieces of legislation Annex 7: Selected bibliography Annex 8: Evaluation Questions 1.Introduction Overview of the Consumer Credit Directive’s provisions The Consumer Credit Directive (hereinafter, “the Directive”, or “CCD”) addresses consumer credit between EUR 200 and EUR 75,000 (and over when the credit is destined for the renovation of a residential property) such as loans granted for personal consumption, including automotive vehicles, household goods and appliances, travels, as well as overdrafts and credit cards. By contrast, overdraft facilities to be repaid within a month, interest-free credits, hiring or leasing agreements without an obligation to purchase are among the main types of credits excluded from its scope. The most important Directive provisions are the following: -Standard information to be contained in advertising: advertising concerning credit agreements, which indicate an interest rate or an element of the cost of the credit, have to include standard information about all the cost elements of the credit by way of a representative example. -Pre-contractual information: for all credit offers, the consumer will receive a Standardised European Consumer Credit Information (SECCI) sheet, to be used by all creditors at EU level. It sets out all the essential information the consumer needs in a clear, standard way. -Annual Percentage Rate of Charge (APR) - the Directive establishes an EU wide method of calculation for the APR, which expresses the total cost of the credit to the consumer, expressed as an annual percentage of the total amount of the credit. -Right of withdrawal - once consumers have concluded a credit contract, they have 14 days to withdraw from the credit without having to give any reason

-Right of early repayment - the Directive grants to consumers the right to repay early at any time. Under certain circumstances, however, the creditor shall be entitled to fair and objectively justified compensation for possible costs directly linked to early repayment. -Creditworthiness - the Directive also imposes an obligation on creditors to assess the creditworthiness of the consumer prior to granting a credit. Such assessment can be done by checking credit databases, for which the Directive imposes non-discriminatory conditions in the event of cross-border access to these databases. Purpose of the Evaluation This Staff Working Document presents the result of the REFIT evaluation of the Directive, launched in 2018 and part of the REFIT initiatives annexed to the 2019 Commission Work Programme. In line with the Better Regulation guidelines, the main purpose of the evaluation is to assess the effectiveness, efficiency (including potential for simplification and burden reduction), relevance, coherence and EU added value of the Directive, analysing whether it remains fit for purpose in today’s legal, economic and technological environment. The Commission has launched this evaluation in response to a REFIT Platform opinion on the Consumer Credit Directive adopted in September 2017 recommending that the Commission assess the relevance, effectiveness and efficiency of the standard information requirements to be included in advertising, as per Article 4 of the Directive. Moreover, Article 27(2) of the Consumer Credit Directive, specifies that the Commission “shall undertake, every five years, […] a review of the thresholds laid down in [the] Directive […]. The Commission shall also monitor the effect of the existence of the regulatory choices [therein] [by Member States] on the internal market and consumers”. The work performed under the 2017 Consumer Financial Services Action Plan - following which the Commission undertook to explore ways of facilitating cross-border access to consumer credit whilst ensuring a high level of consumer protection, as well as to seek to introduce common standards for creditworthiness assessment and credit registers and monitor the distance selling market of financial services – also feeds into the evaluation. Scope of the Evaluation The evaluation covers developments since the adoption of the Directive (in 2008) until September 2019. The evaluation covers all EU Member States (MS), although in some instances information and data gathering refers only to a limited sample. These instances are indicated in the text of the Staff Working Document (SWD). 2.Background to the Directive Context of the EU intervention Origin of EU intervention in the field of consumer credit Council Directive 87/102/EEC of 22 December 1986 laid down rules at Community level aimed to bring about “a certain degree of approximation of the laws” concerning consumer credit agreements. It covered credit agreements - other than mortgages - longer than three months between ECU 200 and 20,000 but with several exemptions (e.g. credits to be repaid in maximum four payments in a period up to 12 months, zero interest rate loans, etc.). Directive 87/102/EEC introduced the inclusion of an Annual Percentage Rate of Charge (APR) and its calculation and communication to the consumer, as well as the right for the consumer to discharge the obligations under a credit agreement before the time fixed by the agreement – with an equitable reduction in the total cost of the credit. In 1990, the Directive was amended by Directive 90/88/EEC concerning the APR calculation. At Member State level, the protection of consumers and the consumer credit market was uneven, as Directive 87/102/EEC only provided for minimum standards of consumer protection. This led to Member States introducing additional provisions that covered other types of credit and credit agreements not covered by the Directive. Differences in legislation included, for example, different time limits and procedures in connection with the credit agreement, such as ‘cooling off’, ‘withdrawal’ and ‘cancellation’, as well as repayment. In 1995 and 1996, the Commission presented two reports on the operation of the Directive, after having consulted relevant stakeholders. These reports revealed substantial differences between the laws of the various Member States, which used a variety of consumer protection mechanisms in addition to the Directive. Such differences in some cases led to distortions of competitions among creditors and created obstacles to the internal market. Development of the 2008 Consumer Credit Directive The revision of Directive 87/102/EEC was considered necessary to address a series of factors including technical problems in connection with accessing another market, a lack of adequate harmonisation as regards national legislation and the changes to the methods and styles of credit that had occurred since the 1980's. The Commission first presented a proposal –dated 2002– for a revised version of Council Directive 87/102/EEC, which aimed at offering a fully harmonised set of provisions to provide for a higher level of protection to consumers. However, negotiations between the European institutions on consumer protection standards were protracted and involved substantial changes, leading to revised proposals in October 2004 and again in November 2005. In 2008, the revised proposal was finally adopted and the Directive repealed Directive 87/102/EEC. Although modelled on Directive 87/102/EEC, the Directive went significantly further, with the introduction of a defined scope and a right to withdraw, as well as a better defined right to early repayment. While the Directive is mainly of full harmonisation nature, Member States were given a certain degree of flexibility in implementing some of the rules.

Intervention logic The Directive has two main objectives, namely to improve consumer protection and to foster the emergence of a well-functioning internal market for consumer credit. These objectives are intended to be achieved by the Directive’s provisions (indicated in the graph below as content/inputs). The first objective of improving consumer protection includes three specific objectives: 1)informing consumers about the costs and conditions of the credit they request, 2)providing consumers with rights to terminate their contract, and 3)fostering responsible lending among credit providers. The second main objective of fostering the emergence of an internal market for cross-border credit provision includes two specific objectives: 1)facilitating cross-border access to consumer credit offers, and 2)ensuring a level-playing field between creditors by providing a harmonised framework. The objectives of the Directive at the time of its drafting were intended to respond to key needs. Primarily the realisation that the existing Directive 87/102/EEC was not fully responding to the needs of consumers and this was leading to reported consumer dissatisfaction with the quality of consumer protection. In addition, the absence of a single credit market meant sub-optimal demand and offer of consumer credit. The different levels of consumer protection standards across the Member States had led to differences in legislation and lending practices. Finally, the increase in the number of consumer credits, the development of new types of credit and the related risks for consumers (surcharge, insolvency) needed to be addressed too. The objectives of the Directive are linked to a set of specific provisions (inputs), that correspond to given articles of the Directive. These relate to the provision of information at the advertising and pre-contractual phases (Art 4 and 5), the definition of the Annual Percentage Rate of Charge and its calculation (Art 19), the rights of withdrawal and early repayment (Art 14 and 16), and the obligation on creditors to perform a creditworthiness assessment (CWA) of the consumer (Art 8), which is accompanied by rules on credit database access (Art 9). These inputs in turn lead to outputs consisting in the transposition, the practical application and enforcement of the Directive, and other effects (such as the application to other areas or elements outside the scope of the Directive). These outputs are therefore directly measurable in terms of their transposition or practical application and functioning in Member States. Flowing from these activities, two outcomes can be expected: firstly, enhanced consumer awareness and empowerment through access to clear information: this allows the consumer to be able to withdraw from credit agreements and to more easily repay them early. This information protects the consumer against inappropriate lending practices. Secondly, improved functioning of the internal market for consumer credit through ease of access in cross-border credit provision and establishing a level playing field between providers. These two outcomes should ultimately result in a high level of consumer confidence and protection, and free movement of credit under optimal conditions for both consumers and credit providers. Finally, there are several external factors outside the remit of the Directive. This includes changes to the consumer credit market (the growth of e-commerce) and wider digitalisation trends and new developments in financial technology. In addition, the harmonisation in the EU following the implementation of the Directive does not impact the wider socio-economic differences between Member States and which explain credit demand and supply, as well as factors such as interest rates. There are also discrepancies in the status, mandate and resources/power of national authorities and enforcement bodies, and consumer associations. Baseline - the situation before interventions The main baseline for the evaluation is the situation prior to the adoption of the Directive. The situation accounted for in 2008, year of adoption of the Consumer Credit Directive, is considered as baseline for the evaluation of the Directive. An additional point of comparison could be the situation following the 2008 financial crisis. However, as highlighted by the 2014 Commission report on the implementation of the Directive, some Member States implemented it after the stipulated deadline and therefore in 2014 it was difficult to identify the impact of the regulatory choices exercised by the Member States. The consumer credit sector leading up to 2008-2010 In the early 2000s, the consumer credit market in the EU experienced high levels of growth. Household debt - which include all types of debt such as personal loans and mortgages - have shown constant increase from the late 90s until 2010. Household debt was an important driver of the economic growth during the pre-crisis period. Stable levels of inflation lowered households’ constraints of liquidity and enabled consumers to switch from saving to borrowing. However, the credit expansion was also boosted by the development of the Single Market integration in financial services, innovative credit products and the overall optimistic outlook of the EU economy . The positive outlook, combined with the still low interest rates over 2003 – 2005 resulted in consumers taking more credits. The share of household consumption financed by credit and the level of indebtedness remained relatively constant over the first decade of the 2000s. On average, 12.4% of household consumption was financed through consumer credit. The level of consumer indebtedness corresponded on average to 18.3% of their individual income (wages and salaries). In 2008, the average interest rate in the Eurozone for consumer credit was 8.9% per year. This interest rate had been fairly stable since 2003. Only after the financial crisis did the average interest rate slowly go down, to around 6% in 2019 .

In terms of how common personal loans were in the EU, there are no hard data. However, it is possible to estimate the share of EU citizens with a personal loan in 2006 from the 2011 Special Eurobarometer 373. Incidence rates in 2006 ranged from 2% in Italy to 21% in Denmark. Figure 2 - Estimated share of EU citizens with a personal loan in 2006 Source: ICF elaboration of Eurobarometer 373 data The same can be done for credit cards. The 2006 data show large discrepancies in the estimated number of citizens with a credit card across the EU, ranging from 5% in Hungary to 69% in Luxembourg. While there is equally no hard data on the total number of credit cards available, the wider trend can be seen from the total number of payment cards in circulation in the EU, which shows strong growth of the total number of cards over the period 2000-2010, also – importantly – influenced by enlargement in 2004 and 2008. On the cross-border dimension of financial services, results from the 2011 Special Eurobarometer 373 revealed that a rounded 1% of consumers acquired a credit card in another Member State, as opposed to 0% for personal loans. However, the share of respondents that considered acquiring a credit card in another country amounted to 3%, and 2% for personal loans. Consumer trends and issues faced around the time of the entry into force of the Directive in 2010 The process in the years 2002-2008 leading up to the adoption of the Directive in 2008 showed a number of issues and developments on the consumer credit market that set the 2008 baseline, such as : ·Increase in the types of credit used by consumers, for instance the overdraft facility on current accounts, leading to a wider concept of “consumer credit”; ·Indication of there being inadequate protection of consumers by the existing legislative framework, inter alia because of differences among Member States in banking/financial practices (in 2002, more than 35% of consumers considered that the legislation was not protecting their rights); ·Because of differences in national legislations, distortion of competition as a result of different protection levels; ·Limitations to the acquisition of cross-border credit because of barriers linked both to the supply and demand side (see explanation below); ·Wide difference in transparency of financial services among Member States; ·Insufficient available remedies. For instance, the 2011 Special Eurobarometer 373 shows that a high number of respondents (78%) who acquired a personal loan in the five years before 2011 had received written information about the product. In terms of product comparison, 57% of those getting a personal loan had compared several products before making a decision, while 42% took the first product outright. However, this masks substantial differences ranging from 82% of respondents in Bulgaria comparing products to 35% in Cyprus. For credit cards on average 46% of respondents compared products, and 52% had not. The acquisition of a consumer credit was predominantly done face-to-face with the provider (76% of consumer surveyed) and through an intermediary or advisor (13%). Distance means were not common (6% of the credit obtained online and 4% by phone). This survey sheds further light on the main barriers which hampered the purchasing of financial products cross-border. This includes a lack of demand, with consumers considering that offers on the national market were sufficient (32% of consumers surveyed), that they had a preference for products from their home country (23%) or found the language barrier problematic (17%). In addition, consumers felt that they lacked clear information about offers available (21%), were unaware of their rights in a cross-border context (18%), and were worried about fraud or crimes (15%) or about lower levels of consumer protection in other Member States (5%). These figures mask however substantial differences across Member States. For instance, lower levels of consumer protection were cited as a concern about cross-border purchase by 15% of those in Sweden and 0% in Estonia, Greece and Poland. 3.Implementation / state of Play According to Article 27(1) of the Directive, Member States were required to transpose the Directive before 11 May 2010. All Member States have transposed the Directive by the end of 2011 (some of them later that the deadline imposed by the Directive), with no infringement proceedings being completed (16 were initiated for failure to communicate national implementing measures on time while 4 Member States failed to ensure its timely entry into force or effective application, but all cases were closed soon after). Twenty Member States transposed the Directive by adopting new legislation, while the rest introduced amendments to pre-existing legislation. No systematic deficiencies in the transposition of the Directive by Member States were identified. The Directive was transposed in all Member States with a view to achieving maximum harmonisation. Flexibility was nevertheless given to national lawmakers for nine optional provisions under Article 27(2) that offer the possibility for Member States to make use of particular regulatory choices. For instance, Member States had the legal option to decide that the Annual Percentage Rate of Charge would not need to be provided in advertising for overdraft agreements, and eight of them made use of this legal option.

In addition, some provisions of the Directive set clear objectives but do not clearly specify the result to be achieved. This gave Member States some additional discretionary power.. National transposing measures have often gone beyond the requirements of the Directive, laying down additional elements to further protect consumers (e.g. introduction of caps on interest rate). Full details are available in Annex 5. The consumer credit sector 2008-2019 After almost a decade of marked growth in the volume of personal credit for consumption, the 2008 financial crisis began a period of contraction that lasted until 2014. The volume of credit for consumption has since recovered, with an average annual growth of credit for personal consumption above 4% since 2015. Source: ICF (2019), developed with data from the ECB (monthly Economic Bulletin 2015–2019 and Economic Bulletin 2008–2015) and Eurofinas (Key Facts & Figures 2012-2017). Note: No data on automotive financing for 2008-2011, 2018, 2019. Data for 2019 on personal consumption credit only cover Q1. The overall picture of total consumer indebtedness shows decreasing trends until 2014, as of which the level of indebtedness is increasing again. At the same time, the problem of loan arrears is common among vulnerable consumers, especially in some Member States, and may be symptomatic of a risk of over-indebtedness. In 2018, 3.3% of households had arrears on mortgage or rent payments, 2.1% on hire purchase instalments or other loan payments and 6.6% on utility bills. Many European households continue to find it difficult to make ends meet. Source: ICF elaboration. Note: The share of household consumption financed by credit = consumer credit outstanding amount / household expenditure. Consumer indebtedness = outstanding consumer credit amount / household income. Consumer credit and revolving credit interest rates have gradually dropped since 2008. Low interest rates should result in consumers taking on more credit. Figure 5 - Interest rates for consumer credit in the Eurozone, 2008–2019 Source: ICF, based on ECB data [MIR.M.U2.B.A25.I.R.A.2250.EUR.O;MIR.M.U2.B.A2Z1.A.R.A.2250.EUR.N]. Note: data on revolving credit and overdrafts not available for 2008-2010. There is no comparable data on the number of EU citizens with a personal loan, but in 2016 the share of EU citizens with a personal loan was around 11%, down from 13% in 2011 . Figure 6 - Estimated share of EU citizens with a personal loan in 2011 and 2016

Source: ICF elaboration of Special Eurobarometer 446 and 373 data Based on EU population data, it is estimated that in 2018 there were around 59.8 million EU citizens with a personal loan, and a total number of personal loans in the EU of 71.8 million . The number of consumers opting for credit cards has increased slightly since 2011, with 43% of Europeans having a credit card in 2016 (three percentage points (p.p.) higher than in 2011), compared to 11% who had a personal loan (two p.p. lower than in 2011) . The share of EU citizens with a credit card has risen by 3% over the period 2011-2016, according to Eurobarometer figures, ranging from 11% in Hungary to 84% in Luxembourg . Figure 7 - Estimated share of EU citizens with a credit card in 2011 and 2016 Source: ICF compilation, based on Eurobarometer 446 and 373 data The total number of payment cards has gradually increased in the EU, going up from 474 million in 2010 to 544 million in 2018 . Credit cards and revolving credit - a line of credit where consumers pay a fee to a financial services provider to borrow money if and when needed – are covered by the Directive if the amount borrowed falls under its scope of application. The 2016 Eurobarometer 446 shows no evolution since 2011 on the number of European consumers having obtained a loan or a credit card from a provider based in another Member State (still between 0 and 1%). However, consumer concerns with purchasing financial services from another Member State have somewhat evolved: the number of consumers not knowing their rights in case something goes wrong went down from 18% to 13% between 2011 and 2016. Similarly the importance of the language barrier went down from 17% to 12% over the same period. Nonetheless, general consumer preferences (finding the offer in the national market sufficient, preferences to buy face-to-face or from a local provider) have remained stable. Finally, an important market development since 2010 has been that of short-term high-cost (STHC) instalment loans - especially payday loans – which have warranted particular attention in several Member States during the last decade. This type of credit is usually taken by consumers who are hard-pressed to meet their financial needs . The credit amount is relatively small and the initial duration short, although such loans are very likely to be extended over time. Payday loans are a relatively small, high-cost instalment loan that has to be repaid over a short term, or until “payday” . Since 2008, the provision of payday loans has expanded across the EU and are now available in many Member States, as highlighted by a recent OECD report . Payday loans are often offered through digital channels. Digitalisation has expanded rapidly from 2008 to 2018, as pointed out by various indicators. On the one hand, there has been a steady decline in the number of financial institutions, in particular banks, denoting a trend towards fewer points of sales and increased online activity. Similarly, the number of bank branches decreased by 27% from 2008-2018, while the number of bank employees reduced by 14% over 2009-2018. On the other hand, online banking penetration in the EU has increased steadily since 2008. In 2018, around half (51%) of EU adults were using internet banking. This share is constantly increasing and has nearly doubled since 2008, when it stood at 29%. Limited/no data is available on the average amount and duration of consumer loans. 4.Method Main sources of data The evaluation took place between June 2018 and October 2019 and drew on the following main data sources – in addition to data on infringement cases and complaints already at the disposal of the Commission: Study to support the Directive evaluation

The Study was outsourced to ICF S.A. in November 2018 to feed into the evaluation of the Directive. Its main objective is to provide evidence on whether the current Directive framework is still fit for purpose, analyse developments and lessons learned since 2008 and evaluate the overall functioning of this piece of legislation in relation to its original objectives and to those which arose during its implementation. It focuses on in-depth consultation with stakeholders but also relies on other tasks: legal analysis, literature review, cost and benefits analysis and mystery shopping exercises (both offline and online). Stakeholder consultations The full report of all stakeholder consultation activities undertaken for the evaluation is annexed hereto (Annex 2: Stakeholder consultation – Synopsis Report). ·Online public consultation The public consultation on the evaluation of the Consumer Credit Directive ran, on the EU survey website, between 14 January and 8 April 2019. The objective of this consultation was to obtain the views of citizens and relevant stakeholders on the functioning of the Directive. The public consultation questionnaire was tailored to two main categories of stakeholders: the general public (i.e. consumers) and stakeholders who are involved in the implementation of the Directive or who have detailed knowledge of the functioning of the different elements of the Directive and their impact on the consumer credit market. In accordance with the Better Regulation guidelines, the consultation was available during 12 weeks and respondents could reply in any of the 24 official EU-languages. The questionnaire attracted 234 responses. An initial summary report of the findings was published in May 2019. ·Online surveys As part of the study, to get a more detailed knowledge and reach a variety of stakeholders, the contractor launched and promoted online surveys for consumers and creditors. The consumer survey ran between 6 and 18 March 2019, targeted consumers in the EU28 and gathered a total of 3.886 replies on first-hand experience in accessing consumer credit. The creditor survey was launched in February and stayed open until the end of April 2019. 51 banks and non-banks replied to it. ·Stakeholder event The Commission organised a stakeholder event in Brussels (“Protecting consumers in the digital era: can we do better”, co-organised with CEPS) on 18 June 2019 to present the interim findings of the evaluation and gather feedback from relevant stakeholders. More than 140 participants attended the event, exchanging on Directive-related issues like scope, pre-contractual information and advertisement, creditworthiness assessment and responsible lending. ·Ad-hoc meetings Several ad-hoc meetings with relevant stakeholders (e.g. consumer associations and industry representatives) took place in the course of 2018 and 2019 to discuss the evaluation of the Directive. ·Consultation of relevant expert groups In evaluating the Directive, the Commission also consulted two relevant expert groups: the Expert Group on the Implementation of Directive 2008/48/EC on Consumer Credit and the Financial Services User Group (FSUG). While the first one met in two occasions (January and November 2019) to provide input to the Commission from the different national perspectives, the FSUG delivered in April 2019 an opinion on the evaluation of the Directive. ·Contributions received from stakeholders While carrying out the evaluation, the Commission - often in the context of ad-hoc meetings - has received several contributions (e.g. position papers, statistics, report etc.) from different stakeholders, which have all been passed on to the contractor for the purpose of the study and/or analysed by the Commission itself. It is worth underlining the Information Report adopted by the European Economic and Social Committee in July 2019. It is based on the consultations of 30 Civil Society organisations (CSOs – representing consumers, employers and workers) and national authorities in order to understand how they experienced and observed the impact and the changes brought about by the Directive. Experience Gained from the European Commission Consumer Financial Services Action Plan Under the 2017 Consumer Financial Services Action Plan, the Commission undertook three initiatives in the field of consumer credit, which delivered relevant insights and experiences: ·exploring ways of facilitating access to loans across borders while addressing consumer over-indebtedness linked to credit activities (Action 7); ·working with Member States at identifying national approaches and best practices to credit worthiness assessment for consumer credit (an obligation under the Directive) and access to credit databases (Action 9); and

·monitoring the distance selling market to identify the potential consumer risks and business opportunities (Action 12). Discussions have taken place with stakeholders (creditors, authorities, consumer organisations) to understand the barriers faced in the cross-border provisions of consumer credit. These include legal and technical barriers (know-your-customer requirements as per anti-money laundering requirements, difficulty in checking the identity and creditworthiness of consumers), language barriers and questions around applicable law. With the input of the national authorities in charge of enforcing the Directive, the Commission has developed a mapping of national approaches to creditworthiness assessment. Results show that Member States are approaching the implementation of this provision in very different ways. The Commission has also conducted a Behavioural study on the digitalisation of the marketing and distance selling of retail financial services, finding out that digitalisation has given rise to new market practices –often legally problematic-, impacted providers and their business models. It has also analysed how to provide information to consumers via behavioural experiments and tested the effectiveness of solutions adopted recently at EU level. Literature review A number of studies informed the evaluation, including the Behavioural study on the digitalisation of the marketing and distance selling of retail financial services (2019, London Economics Europe, VVA Consulting, Ipsos NV, ConPolicy and Time.lex) and the Study on Measuring Consumer Detriment in the European Union (2017, Civic Consulting). The full list of academic and grey literature used for the support study to the evaluation is available in Annex 7. Limitations and robustness of findings Limitations The following limitations should be taken into account: -the data collected to establish the baseline was limited; -limited information was available for short term high cost loans, overdrafts, linked credit, and cross-border access to databases; -it was not possible to gather comprehensive data from complaints at national level specifically related to consumer credit; -in the course of the evaluation, and in the framework of the supporting study, data was sought on credit provision from non-banks, but it became very challenging to gather hard data on non-banks credit providers. Whenever quantitative data are lacking, this is counter-balanced or complemented with qualitative analysis, estimates and assumptions. In addition, in order to mitigate these limitations, during the evaluation additional industry stakeholders were approached for input and further desk research was carried out. The inherent limitations of the findings of public and targeted consultations, reflecting the views of a sample of stakeholders, should also be taken into account. Nonetheless, efforts have been made to ensure a balanced consultation of all relevant stakeholder groups. Robustness of the findings The quantitative analysis of the consumer detriment and the contribution of the Directive to its reduction, described in Annex 3 as well as in the supporting study, is considered to be robust as it follows the detailed operational guidance to scientifically sound and resource efficient assessments of personal consumer detriment in markets across the EU developed in a 2017 study commissioned by the European Commission. 5.Analysis and answers to the evaluation questions This section presents the findings of the evaluation, based on the triangulation of evidence collected through the different means presented above. Findings are grouped under each of the Better Regulation criteria, contributing to an in-depth analysis of the functioning of each of the key elements of the Directive. Effectiveness

The effectiveness analysis considers how successful EU action has been in achieving or progressing towards its objectives. EQ1 – To what extent has the Directive achieved its objectives? Have the scope of application and the definitions facilitated or hindered the achievement of the objectives? What are the main benefits and drawbacks of the Directive? The Directive has two overarching objectives: 1) to ensure a high level of consumer protection and 2) to foster the emergence of a well-functioning internal market. Objective 1: Ensuring a high level of consumer protection The objective of ensuring a high level of consumer protection has been partially achieved, with differences between the various provisions. Stakeholders consider –although with some nuances - the provisions of the Directive to be helpful and effective, but point to areas for improvement. The introduction of the Directive has enabled the development of a specific legal framework to protect consumers in this sector, which did not exist in numerous Member States at the time of its introduction. However, several Member States have also completed the Directive provisions with additional elements, which would imply that the Directive on its own was not sufficient to reach the highest level of protection and that more stringent measures were needed at Member States level to afford more protection to consumers and/or address detrimental practices.

Overall, the Directive has been partially effective in ensuring a higher level of consumer protection than was the case before its adoption. The majority of stakeholders interviewed considered the Directive effective in ensuring better protection of consumers. Of the consumer associations interviewed, only a slight majority (just over 50%) of respondents considered the Directive effective in this respect, compared to a substantial majority (over 75%) of industry representatives, Member States and enforcement bodies. A majority of respondents to the Open Public Consultation also considered the Directive effective in this respect. The transposition of the Directive indeed triggered substantial reforms of the consumer credit environment in most Member States. New elements were introduced by the Directive, in particular in relation to pre-contractual information Standardised European Consumer Credit Information (SECCI) and advertisement, as well as the right of withdrawal. These elements have, over time, helped to ensure a higher level of consumer protection. These provisions are considered positive and largely effective by most national authorities, consumer associations and consumers themselves (about their practical working see the specific sections - EQ3, EQ4 and EQ6). Other areas, such as requirements on the Annual Percentage Rate of Charge (APR), already existed prior to the Directive but were completely harmonised, affording a high level of consumer protection across the EU. Studies from the early 2000s showed that consumers expressed a need for further harmonisation, and this has generally been overcome by the Directive as overall consumer protection standards have gone up. The ability of the Directive to fully meet its objective of ensuring a high level of consumer protection has however been hampered by a number of specific legal developments. The Directive aims at offering a sufficient degree of consumer protection to ensure consumer confidence. An uneven level of consumer protection across the EU leads to fragmentation and unequal conditions to access credit products in other Member States. Even if cross-border activities concern a small part of credit agreements, they are important because they can increase competition and ultimately consumer choice; moreover they are expected to increase thanks to digitalisation. Some of these legal developments are directly linked to a few provisions of the Directive, which have been implemented in various ways by Member States. In addition, Member States have regulated differently various credit-related issues not covered by the Directive. As such, even though the Directive has fully harmonised several aspects of the provision of credit, the overall level of consumer protection in this sector is somewhat fragmented across the EU. It depended on political choices made by the co-legislators to exclude several types of consumer credit from the scope of the Directive, which, depending on the Member States, may have then been somehow regulated by specific rules at the national level. This aspect is further analysed under EQ7. Another example concerns a few provisions of the Directive, which have given rise to different implementation and interpretation across Member States (see EQ3, EQ4). Furthermore, in many instances, Member States have added elements to their own consumer credit legislation, usually imposing additional requirements on creditors and affording greater protection to consumers. The fact that Member States have felt the need to add such measures may indicate that the Directive was not considered entirely sufficient by Member States to ensure a high level of consumer protection, often adapted to national specificities. This is particularly relevant in relation to the objective of the Directive of ensuring responsible lending, where Member States have gone beyond the Directive provisions to address specific forms of problematic lending practices (e.g. see EQ4 for more details). Finally, the difference in remedies and enforcement structures (for more details, see EQ2) available for consumers across the EU has meant that, while a fairly high level of consumer protection standards exists, its application is uneven which somewhat limits the achievement of the objective. Objective 2: Facilitating the emergence of a well-functioning internal market Consumer credit remains predominantly provided at national level, with a very limited cross-border market (0.9% of all loans), and stagnant compared to the baseline. This can be explained by a series of barriers, some of which are directly linked to the way some of the Directive provisions have been implemented by Member States. However, many other barriers relate to aspects beyond the provisions of the Directive, both on the supply side – because of general regulatory and market fragmentation, and on the demand side, because of general consumer preferences, but also by geographically-based discrimination through geo-blocking techniques. The Directive has played a positive role in achieving this objective thanks to certain provisions that have harmonised key aspects of the provision of consumer credit in the EU (Standardised European Consumer Credit Information, right of withdrawal, …) ensuring a level-playing field on these aspects between providers and the same rights for consumers.



Between 2008 and 2019, cross-border household loans have remained almost unchanged at around 0.9% of all outstanding credit in the eurozone. The lack of significant changes in these figures suggests that the Directive has had little noticeable impact on cross-border access to credit. The consumer credit market in the EU remains predominantly national. With the exception of consumer associations (whose opinions were divided on whether the Directive has facilitated cross-border access to credit and resulted in increased competition at EU level), all stakeholder groups agreed that the Directive has not triggered a significant increase in cross-border operations or EU-level competition. Similarly, while national authorities were relatively positive about the impact of the Directive on the level of consumer protection in cross-border operations, the Directive is seen by the vast majority of stakeholders as having had little or no impact in this respect. The lack of an internal market for consumer credit is due in part to the way some of the Directive provisions have been implemented, and mainly to the fact that the Directive, on its own cannot actually achieve this objective because of its limited set of provisions, and because of external factors influencing offer and demand. Perceptions of distortion of competition between creditors in the internal market due to different protection levels were largely addressed by the Directive in the form of a more level playing field with the same standards applying across the EU. This is particularly the case in relation to aspects fully harmonised by the Directive such as the Annual Percentage Rate of Charge (APR), the rights of withdrawal and early repayment as well as the Standardised European Consumer Credit Information (SECCI). On the demand side (as explained in Section 3) general consumer preferences like finding the offer in the national market sufficient, and preferences for obtaining a credit locally, appear to have remained unchanged over the past 10 years. Consumers also lack information about existing cross-border offers of financial products. In addition, the lack of knowledge among consumers of available redress mechanisms and of applicable legislation in case of cross-border purchase deter consumers from obtaining credit from another Member State. Indeed, 23% of the consumer surveyed mentioned the uncertainty about their rights abroad as the main reason for not looking for a credit in another Member State. Lack of language skills was also mentioned as a reason by 14% of respondents.

There is however a growing interest among consumers for cross-border credit offers: 29% of the respondents to the consumer survey said they had looked for a credit from a creditor located in another EU country. This compares to only 2% in 2011 who said that they would potentially buy a personal loan in a foreign EU country. However this demand is often unmet as traditional creditors rarely target consumers in other countries. Moreover, access to offers available in another country is often limited due to geographical restrictions. In the digital realm, geo-blocking techniques are used by credit providers to re-route consumers or prevent the conclusion of a transaction, effectively denying access to credit for cross-border consumers. In 2015, the European Commission echoed the then recently adopted Digital Market Strategy and anticipated that actions seeking to avoid geo-blocking and other types of geographically-based discrimination would be taken. Although a new Regulation on geo-blocking was adopted in 2018 (Regulation (EU) 2018/302), financial services have been specifically excluded from its material scope for the time being. The Geo-blocking Regulation is currently under review. These restrictions may include the requirements imposed by providers on consumers wishing to obtain a credit from a creditor based in another Member State to provide an ID or social security number, address, telephone number or tax declaration from the country where the creditor is based as pre-requisite for the transaction to be accepted. This was corroborated by the mystery shopping exercise for this study during which it proved impossible to obtain cross-border credit . Some creditors have a policy of refusing credits to individuals which they consider do not have sufficient economic and personal links with the Member State in which these creditors are established. This can even lead to the impossibility in practice for some people to get a credit in any Member State. This reveals that we are still far from a well-functioning EU internal market for credit products. These restrictions are the expression of the barriers faced on the offer side, whereby because of the fragmented regulatory framework (uneven implementation of the Directive and a lack of harmonisation of other rules relevant for creditors e.g. tax and civil law, legal framework for debt recovery, and anti-money laundering obligations) and differences between markets and consumer preferences (e.g. consumers unaware of the possibility of seeking cross-border credits or unsure of their rights in another Member State, or language barriers), most creditors prefer to operate on a national basis. However, newly emerged fintech companies offering unsecured loans to consumers in various Member States – whose market share is currently insignificant compared to traditional credit providers - could have an impact on the future development of a cross-border market. Regulatory fragmentation and the consequent lack of exploitation of synergies and economies of scale in the internal market raise costs for providers who want to sell on another market (which are then passed on to consumers), reduce the offer available and make it more difficult for consumers to know the regime which is applicable in another Member State. EQ2 – To what extent has the Directive led to legal clarity? What is the level of compliance of businesses and their enforcement? Issues of compliance have been identified in relation to all the key provisions of the Directive, to varying degrees. There are considerable differences in enforcement tools and remedies used by competent authorities, which impact the functioning of the Directive’s provisions in practice. Legal clarity, although not for all provisions, has improved as the Directive has provided a higher degree of regulatory harmonisation.



Consumer credit legislation in the EU remains very fragmented, limiting the impact of the Directive on legal clarity. This fragmentation is due both to how the Directive has been implemented by Member States but also by aspects not covered by the Directive which have been regulated differently across the EU (see EQ1, EQ3 and EQ4 for more details). Nevertheless, compared to the baseline, the Directive has managed to improve legal clarity in terms of most requirements on the right to withdrawal, right of early repayment, Standardised European Consumer Credit Information (SECCI), Annual Percentage Rate of Charge (APR) and advertisement. More problematic is the situation around creditworthiness assessment (CWA) (see EQ4). As explained in EQ1, the Directive has partially achieved this objective, as it has increased the level of harmonisation in the aspects it covers. Despite these improvements, there are indications that legal clarity has not improved in all areas since the adoption of the Directive. Very few stakeholders believe that the Directive has brought more legal clarity . Most credit providers stated that the lack of clarity in respect to their obligations is the second most important obstacle they face in complying with consumer credit legislation . The discretion left to Member States (due to the limited scope of application and the high number of regulatory choices), combined with the vague wording of some provisions, has limited the ability of the Directive to achieve legal clarity and has led to uneven implementation and enforcement of the Directive across Member States , . However, this lack of legal clarity should not be attributed exclusively to the Directive, as providers of consumer credit operate in a complex regulatory framework combining EU and national rules. This evaluation generally finds that compliance is high, with Member State authorities and enforcement bodies generally agreeing. However, the lack of legal clarity might have led to divergent situations in Member States, and hence to fragmentation, despite the high compliance of providers with national requirements. 87% of the respondents to the European Economic and Social Committee (EESC) survey found that the Directive had been fully and effectively enforced. However, some stakeholders, in particular consumer associations, enforcement authorities and consumers themselves have identified issues in relation to all provisions of the Directive . The use of information in advertising that is not ‘clear, concise and prominent’ or does not include a representative example of the APR are the most commonly identified breaches of the Directive’s provisions. Poor CWAs and the provision of pre-contractual information without using the SECCI or without providing individualised information were also identified by stakeholders, albeit to a lesser extent . Stakeholders also noted some issues of poor communication of the right of withdrawal and non-compliance with the 14-day period , and the amount to be repaid in compensation to creditors (right of early repayment). There is no comprehensive data on sector compliance itself. Based on the Consumer Market Scoreboards from 2010 and 2017, the share of consumers who experienced at least one problem went down from 14% to 8%, which is an indication that the Directive has been effective in increasing compliance with its provisions. However, a 2011 consumer credit sweep on “buying consumer credit online”, showed that across the then EU-27, Norway and Iceland, only around 45% of over 560 websites were deemed to be compliant . In terms of enforcement and remedies, there are vast differences in existing practices across the EU. Judicial remedies are available to consumers in different forms. At the same time, specific sanctions also differ, with Member States applying monetary and/or criminal sanctions, as well as other administrative sanctions, for breaches of the Directive. For enforcement, a variety of different authorities are involved. In most Member States, the enforcement authority is either the financial supervisory authority, the consumer protection body or the national bank. A small majority of Member States have only one enforcement body responsible for compliance with the Directive, while almost half have appointed several bodies for ensuring correct implementation of the different aspects of the Directive. While the powers and responsibilities with which these bodies are entrusted are generally very similar across Member States, the enforcement activities differ. For instance, annual inspections are carried out in a couple of Member States , with random inspections taking place in others . The EESC survey nonetheless highlights that 30% of respondents find that supervising authorities do not have sufficient resources, staff and powers to ensure effective enforcement of the Directive. The EESC report also points out that this situation varies greatly between Member States. The consumer is able to pursue remedies against the creditor when there are problems with its credit agreement. The extent and type, however, are determined by Member States. Since remedies are not harmonised in the Directive, this results in practice in different levels of consumer protection across the EU in case of non-compliance with the Directive. The likelihood of consumers needing or requesting to pursue remedies depend on the scale of the problems they encounter. This evaluation’s survey showed that 26% of those experiencing any issues did not make any complaint, while 50% took it to the creditor, 23% to a third party . These figures do not seem to have changed since 2011 . Administrative complaints and alternative dispute resolution mechanisms are available in all Member States. Consumers can seek support from institutions such as the consumer Ombudsman and other enforcement bodies or consumer associations. These bodies receive official consumer complaints and can handle cases outside of courts.

Criminal sanctions are found in Austria, Belgium, Denmark, Finland, France, Hungary, Ireland, Latvia, Luxembourg, the Netherlands, Poland, Slovenia and the United Kingdom. Monetary sanctions vary considerably across Member States, with different levels of sanctions applied for serious or less serious infringements of the law. Six Member States apply the administrative sanction of suspending creditors for a limited period of time, or permanently for repeated offences . One common administrative sanction is the suspension of the creditor’s activity in case of repeated offenses. There is therefore a huge disparity in terms of the types and levels of sanctions used by national authorities when enforcing the Directive. The survey carried out by the EESC shows that 40% of respondents would be in favour of the Directive harmonising these penalties (versus 26% who would be against and 33% without opinion) so that they are “effective proportionate and dissuasive (…), [and] harmonised as far as possible, so as to avoid a dumping effect whereby operators base themselves wherever controls are more lenient and sanctions less severe”. The fragmentation of the consumer credit legislation in the EU, which limits the impact of the Directive on legal clarity, and the considerable differences in enforcement tools and remedies used by competent authorities, present a significant obstacle to the development of a well-functioning internal market for consumer credit . EQ3 – Is the Directive – through advertising requirements, pre-contractual information (including Standardised European Consumer Credit Information and Annual Percentage Rate of Charge) and other additional information – ensuring that consumers are effectively provided with accurate, clear, concise, timely and comprehensive information free-of-charge? The practical implementation of both the provision on pre-contractual information (Article 5) and the provision on advertising (Article 4) varies across Member States but also among providers due to the wording of certain parts of these provisions. In relation to Article 4, stakeholder views are split as to the effectiveness of the provision on advertising. Evidence shows that its impact varies depending on the prominence it is given and the media used. Moreover, the way in which providers comply with this provision can lead to poor information and imprudent borrowing choices for consumers. The pre-contractual information provided to consumers under Article 5 is considered effective by a large majority of stakeholders. However, its degree of effectiveness on consumers is impacted by its length, complexity and timing of delivery, as well as the way in which it is provided, notably in the online environment. Overall, the disclosure of information mandated by the Directive is not entirely adapted to all the channels used by providers to communicate with consumers. Levels of financial literacy impacts the extent to which consumers understand this information. Advertisement

Member States and creditors’ associations consulted agree that all required information is provided at the advertising stage in accordance with Article 4 of the Directive. However consumer associations consulted in the course of this study raised issues with the provision and presentation of this information . A handful of stakeholders, mostly representing consumers as well as enforcement bodies, have indeed reported cases of non-compliance in relation to incomplete or missing information in advertising, in particular when it comes to the conditions attached to the credit agreement which are either omitted or presented in a misleading way by advertising low or favourable interest rates without indicating the conditions attached. Overall, views collected are split as to whether the current requirements are effective to inform consumers: 53% of stakeholders responding to the Open Public Consultation (mainly consumer organisations and authorities) considered the provisions of Article 4 somewhat effective or very effective whilst 42% (mainly business representatives) considered it somewhat or very ineffective. The survey carried out by the European Economic and Social Committee shows similar results. However, the effectiveness of the provision on advertising has been somehow confirmed in the online environment. The results of a recent behavioural study suggest that the provision of the Annual Percentage Rate of Charge (APR) and the representative example in advertisings displayed online is effective in pushing consumers to compare other offers . The clarity and prominence of information included in advertising is debatable in some cases, as also hinted by stakeholders. The display of the information in advertising (the framing, the colours, the fonts etc.) is recognised as having a strong impact on consumer decision-making . The wording of Article 4 is vague and does not ensure that the information is provided consistently and presents all the necessary information in a clear and understandable way . Member States have often gone beyond the requirements of Article 4, either by mandating additional information that should be provided to the consumers in advertising or by specifying presentational requirements. Issues have also been identified in relation to advertisements about consumer credit aired on television and radios, with important information either shown for a very limited amount of time or spoken very quickly, not giving consumers enough time to process and recall it . This would suggest the difficulty of Article 4 in being effective consistently across all media types, with a consequent risk of information overload for consumers (see EQ 9). In addition, some compliant advertising practices have been mentioned by consumer associations as being still potentially unclear, incomplete or somewhat misleading for consumers, together with aggressive marketing strategies that could lead consumers to engage in imprudent borrowing . Time-limited offers may increase pressure on consumers to make a rapid decision based on relatively complex information, possibly leading to the choice of a non-optimal credit . This is all the more probable when considering that often this type of credit targets more vulnerable consumers, in some instances including targeted spamming via SMS and email . Several of the online mystery shops (17%) revealed advertising that offered products for a limited amount of time, with the majority found either on comparison websites or on websites accessed via a comparison website. Some Member States have decided to legislate on the topic and prohibit their use . However, information may still attract consumers and entice them into making a purchase without properly considering their options even without a time-limit. This is the case of ‘baiting rates’ which may attract consumers with an example that is very low and not representative for most consumers. Doing so may mean that the actual repayment rates will be much higher , shedding doubt on whether the information provided can be considered ‘accurate’. This practice was observed in 40% of online mystery shops. Pre-contractual information Stakeholders acknowledge that the Standardised European Consumer Credit Information (SECCI) has had a positive impact on consumer protection by providing them with information in an easily understandable and well-structured format . Nearly two thirds of respondents to the Open Public Consultation and 85% of the consumers surveyed considered the SECCI to be effective. 68% of consumers surveyed for this evaluation indicated to have received the SECCI, a finding backed up by the mystery shopping where the SECCI was provided in 74% of the cases . The fact that not all consumers indicate that they have received the SECCI could be explained by two factors: a lack of creditors’ compliance or a lack of consumers’ awareness about documents received. The provision of the SECCI is considered by all stakeholders to have increased consumer awareness of their contracts. However, its length and complexity may create, in some instances, barriers to the proper understanding of the information included therein . Indeed, Open Public Consultation individual respondents are split on whether they understand the information contained in the SECCI: 49% somewhat or totally agreed with information contained in the SECCI being easy to understand while 27% disagreed, and 47% considered it well-presented (while 29% disagreed). Overall, around 70% of the respondents to the consumer survey found the SECCI helpful or somewhat helpful. The use of excessively technical language may create confusion and an inability to properly grasp the details of the contract that one is about to sign. In a recent study, consumers rated the understandability of the information at 2.91 out of 10 and 73% reported signing contracts they did not fully understand . Different levels of financial literacy among consumers and their ability to understand the information contained in the SECCI can also reduce its effectiveness. Complex documents do not cater to consumers with low levels of financial literacy which, as shown by behavioural studies, have difficulties in understanding key credit information such as interest rates or the APR, for example . Nonetheless, maybe also as a consequence of the Directive, the ability of consumers to search and compare products and services in the credit market has gone up, since 2010, from 6.6 to nearly 7.2 on a 10-point scale . The length and amount of pre-contractual information has also been flagged as potentially problematic. In the Open Public Consultation, opinions from individual respondent were split on whether information was concise (35% thought it was, 36% thought it was not), implying that it may not be fully effective. Beyond the length and complexity of pre-contractual information, the way it is disclosed to consumers also plays a key role in its effectiveness. Indeed, while the majority of creditors provides this information in full , the format in which they do so is not necessarily facilitating consumers understanding. This is particularly true in the online environment, where providers can use certain techniques in the disclosure of information that can impact negatively consumers’ understanding of credit offers, as demonstrated by behavioural research . Some stakeholder representing both consumers and creditors found that the format and length of the SECCI is not particularly adapted for mobile technology. In the online environment, it can be provided under a hyperlink, limiting the likelihood for consumers to actually open it and read it . How information is conveyed is important in pre-contractual information, particularly online. Understanding complex information is not helped by the fact that information is not always provided sufficiently in advance to allow for a proper review. In fact, research has shown that most credit agreements could be concluded just a few days after being requested. Some credits can even be released in a few minutes . This is also used as a marketing tool for enticing consumers to a swift and efficient conclusion of a contract . Indeed, speed of delivery is both a selling point for creditors and an element that consumers consider when choosing between credit options . The wording of Article 5 of the Directive allows for a broad interpretation of the amount of time to be granted to consumers before they sign an agreement. The Open Public Consultation showed that 44% of individual respondents did not consider the time available to read and fully understand pre-contractual information as sufficient . The consumer survey shows that 40% of respondents received it on the day they signed the contract. Some Member States have tried to remedy this by either providing guidance or including more details in the transposing legislation so as to ensure that consumers have sufficient time to review the SECCI. EQ4 – How have the provisions relating to creditworthiness assessments worked in practice? To what extent have the provision of the Annual Percentage Rate of Charge and the performance of a creditworthiness assessments contributed to helping consumers find the credit best suited to their needs and avoid over-indebtedness? The Annual Percentage Rate of Charge is generally perceived as a useful tool to help consumers find the credit best suited to their needs. However, its potential is hampered by a lack of awareness and understanding among consumers. The obligation on providers to assess the creditworthiness of consumers is applied in various ways across Member States and types of providers. This renders the assessment of its effectiveness difficult. In the face of digitalisation, new technologies and novel types of data are used by providers to assess the creditworthiness of consumers - which raise questions in terms of transparency, relevance, proportionality and fairness, particularly as the relevant provision in the Directive does not specify which data should be used in this process. Stakeholder views are split as to whether the two provisions are effective enough to help consumers find the credit best suited to their needs and prevent over-indebtedness. The fact that several Member States have introduced specific measures to curb problematic lending practices would suggest that the two provisions are not sufficient on their own to ensure responsible lending.





Provision of Annual Percentage Rate of Charge The provision on the Annual Percentage Rate of Charge (APR) was introduced to provide a numerical and comparable representation of the cost of credit to consumers, though it should be noted it preceded the current Directive and existed already in the previous Directive. Calculation of the APR is entirely harmonised, with the formula implemented uniformly. The APR is used by consumers to select their credit offer: 90% of the individuals who replied to the Open Public Consultation considered the APR as somewhat important or very important in their decision. 75% of stakeholders responding to the Open Public Consultation consider the APR effective, while 60% of respondents to the European Economic and Social Committee survey consider that it enables consumers to compare credit offers across the market. However, stakeholders (across all groups) acknowledge that the APR, both as a formula and as a tool, is difficult to understand, especially in light of low levels of financial literacy. According to the consumer survey, 40% of consumers either did not know about the APR or did not understand its contents. This lack of awareness and understanding by consumers shows an important limitation of a tool considered helpful. Indeed, when correctly conveyed and understood, the APR works well as a comparison tool and helps consumers to choose the credit most appropriate to their needs. This has been established through observations of consumer behaviour and confirmed by stakeholders. However, obstacles persist that limit its effectiveness as a comparison tool for consumers. In addition to those mentioned above, it is worth mentioning how the APR is presented in advertising, such as how it is displayed (font size, prominence) by providers. Difficult understanding of the APR may be exploited to foster cross-selling practices. This is particularly detrimental for consumers in case of tying practices, i.e. the offering of a credit agreement in a package with other distinct financial products where the credit is not made available to the consumer separately. But also if optional products are advertised as though they were a compulsory and integral part of the credit. This evaluation estimates that cross-selling practices can affect up to 25 million consumers, and is the single most common practice that affects consumers. While this is based on consumer self-reporting and some consumers might not remember having received the APR (which is possible in view a general level of awareness of only 60% according this evaluation’s survey), it does show that there might be a relatively small degree of non-compliance. Non-compliance among credit providers, a lack of understanding among consumers, and low levels of financial literacy all reduce the effectiveness of the APR. Creditworthiness assessment The obligations to ensure that, before the conclusion of the credit agreement, the creditor assesses the consumer’s creditworthiness on the basis of “sufficient information” has been implemented differently across the EU. Although Article 8 has been fully transposed, its practical implementation varies significantly between Member States, leading to a diverse regulatory landscape, as shown by a mapping of national approaches in relation to creditworthiness assessment (CWA) carried out by the Commission. The majority of Member States defined more detailed information to be taken into account in the CWA. In a number of them the consultation of databases is compulsory for creditors. This implies, that, depending on the Member States, the amount and categories of data collected by creditors, as well as the techniques to do so, differ greatly. Member State authorities consulted were even split as to whether the regulatory fragmentation causes problems, while almost two thirds of credit providers agree that this does not create problems (possibly a reflection of the current state of the credit market in the EU, which remains predominantly national for creditors). However, two thirds of enforcement bodies considered existing requirements – in particular the provision of “sufficient information” – to be unclear and problematic and two thirds of consumer associations held the view that consumers are dissatisfied with current CWA practices. On the other hand, credit providers, when expressing their opinion on this point, all agreed on the usefulness of the provision, though a few suggested discretion in how they should be performing this obligation. In carrying out CWAs, creditors may choose to rely on information that is specific to the individual consumer (current income, outstanding financial commitments, savings, etc.) or to consumer type. In Denmark, for example, CWAs are primarily based on statistics rather than an individual consumer’s ability to repay or their economic situation. Stakeholder views are mixed on the effectiveness of the CWA obligation in helping consumers finding the credit best suited to their needs and preventing over-indebtedness, as demonstrated by the survey carried out by the Economic and Social Committee and the stakeholders’ replies received as part of the Open Public Consultation. Consumer associations are evenly split as to whether creditors in their Member State consistently carry out CWAs and whether they currently are sufficient and appropriate. Results from the consumer survey and individual responses to the Open Public Consultation suggest nonetheless that creditors check in 80% of the cases whether the consumer is able to repay the credit. An overall trend that has changed the way CWAs are carried out is digitalisation. Compared to the baseline, digitalisation has de facto increased the number and categories of data about consumers generated online. This evolution is impacting CWA methodologies which are evolving rapidly, with innovations focusing on the use of unstructured data in CWA based on data-scrubbing, social media and machine learning. An increasing number of creditors (primarily fintech companies, including peer-to-peer lending) are using such types of assessment. Such novel techniques are presented by the industry as a way to help consumers with a thin credit profile to obtain a loan which they would, under more traditional CWA practices, not be able to receive. However, they raise questions in terms of their actual added value compared to more traditional techniques. These practices, which are often directed at vulnerable consumers, can indeed circumvent the need for a solid credit history and sound financial situation but it is unclear their accuracy and robustness on the assessment of the ability of the consumers to reimburse the credit. They also raise questions in terms of respect of data protection legislation,in particular the principles of transparency, fairness, data minimisation and purpose limitation.. There are also concerns about the algorithms used to calculate consumers’ credit scoring for the purposes of a creditworthiness assessment, especially with regard to their logic, data sources used, significance and envisaged consequences for the consumer, which entail a number of potential risks, such as opaque decision-making, race/gender-based or other kinds of discrimination.. Similarly, the Directive does not provide guidance on the approach to be taken based on the outcome of the assessment, i.e. whether the credit should be granted or rejected, depending on whether the CWA outcome was positive or negative. Providers might grant credit to consumers with negative creditworthiness assessment because of a long-lasting relationship with them and awareness of temporary economic difficulties. However, some providers’ business model is actually based on high interest rates for all consumers to cover the risk of default of some of them (see EQ 7). While rejecting a credit application in case of negative creditworthiness assessment outcome is not required by the Directive, it has been interpreted by the Court of Justice of the European Union (CJEU) that it does not preclude Member States from adopting such an approach. CWAs to an extent aim to foster responsible lending (see EQ 15 for more details) and thus to help reduce over-indebtedness. The CJEU has confirmed that creditworthiness assessments as per Article 8 of the Directive are “intended to protect consumers against the risks of over-indebtedness and bankruptcy”. Consumer credit, especially when it is provided at high interest rates, can be an important source of financial difficulties of households. Less financially stable households are among those which will have greater difficulty in passing a CWA, making them more likely to turn to short-term and high-cost-type credit. Lower levels of compliance with the CWA obligation have been identified among this type of credit. In certain cases, poor performance in repayment is considered to be part of the creditor’s business model, compensated by very high interest rates. Stakeholders differ in their opinions on how CWA should be performed and there is no consensus as to whether the methodology should be harmonised at EU level. These different approaches may present an obstacle to the facilitation of an internal market, as they do not help to create a level playing field for creditors. Overall, the open-ended character of the provision of the Directive on how to perform credit-worthiness assessment did not impact the regulatory and practical divergence of national approaches preceding the Directive. Lack of harmonisation in how CWA should be performed was also raised by several stakeholders as a reason hampering cross-border credit. In May 2020, the European Banking Authority published Guidelines on loan origination and monitoring providing requirements for CWAs in relation to secured and unsecured lending, which should lead to more convergence in how CWA is carried out across the EU. The guidelines will apply as of 30 June 2021. The role of creditworthiness assessment (CWA) and Annual Percentage Rate of Charge (APR) in protecting consumers from inappropriate lending and practices

Several Member States have put in place specific “product governance” measures – not foreseen in the Directive - either aimed at banning certain credit products, capping interest rates or at regulating specific credit product characteristics as these were considered as potentially too costly/harmful for consumers. This would imply that, on their own, CWA and the provision of the APR are not perceived as being effective enough to protect consumers from bad loan decisions and that more stringent measures were deemed necessary by Member States to protect consumers from certain credit products. This is confirmed by the results of the Open Public Consultation and stakeholder survey: two thirds of Member State authorities did not consider the provision of the APR and the CWA obligation as sufficiently effective to protect consumers and argued for various additional measures, including stricter requirements and alignment with the Mortgage Credit Directive on responsible lending standards (see section on coherence). Similarly, the survey of the Economic and Social Committee shows that 47% of stakeholders that answered find that the CWA obligation is not sufficient to help prevent situations of over-indebtedness. EQ5 – To what extent do the conditions of access to credit databases on cross-border basis vary across the EU? Credit databases have been established in all Member States, with the exception of Luxembourg. However, the nature of the credit database (private or public), as well as the type and quality of the data they contain, varies between countries. The conditions of access to credit databases on a cross-border basis also differ significantly. These differences hinder the cross-border exchange of information between creditors. As such, the provision in the Directive on access to credit databases has had limited impact on fostering the emergence of cross-border access to credit offers. Articles 8 of the Directive states that the creditworthiness assessment can be made on the basis of consultation of the relevant database and that Member States who require creditors to check such databases can retain this requirement. Article 9(1) further establishes that access to such databases shall be granted to credit providers from other Member States on a non-discriminatory basis. 16 Member States impose the obligation to consult a database in order to assess creditworthiness. The consultation of credit databases at national level appears to be functioning generally well, although a number of issues have been reported by a few credit providers consulted for this evaluation. In some cases, explicit restrictions are allegedly imposed on certain credit providers. Issues reported also relate to the quality and depth of the information contained, or to the retention period of such information. Although only a few Member States reported different requirements for foreign providers, industry representatives specifically referenced the different requirements to access credit databases in other Member States or the differences in the content of such databases as one of the main obstacles to accessing the information needed to conduct creditworthiness asessments for foreign consumers. Since the Directive did not establish the nature, coverage, type and breadth of the data contained in the databases, these differ extensively between Member States, obstructing the effective exchange of data across Member States. This lack of uniformity in the data can also give a incomplete picture of the consumer that can prevent credit providers from carrying out a sound creditworthiness assessment . Indeed these databases can include only negative data (such as in France, where the public register only includes data about arrears on repayment or application to the over-indebtedness commissions) or, most frequently, both negative and positive (such as ongoing financial commitments) data . There is also a growing push from certain credit providers and credit registers to include “non-traditional data” (such as data from GPS, social media, web-browsing) in these database. However the added value of such data, its proportionality and compliance with data protection rules is challenged, for instance by consumer organisations (see EQ4). Data protection authorities are looking into the functioning and content of credit databases, as demonstrated by the recent Code of Conduct approved by the Italian Data Protection authority, and which notably frames the use of peer-to-peer lending data . Along with these explicit limitations, the principle of reciprocity plays a significant role in the limitation of access to credit databases in a cross-border context. It requires credit providers to supply the same type of data that they wish to access through the credit database, but the lack of standardisation in the data to be collected and reported limits the exchange of information between Member States. Moreover certain national legislations impose limits on the categories of data that can be processed (and shared) by databases for creditworthiness assessment purposes. Private credit databases have nonetheless tried to develop bilateral reciprocity agreements to facilitate cross-border data access to credit databases. Most Member States authorities consulted indicated that conditions of access do not differ based on the location of the creditor while many did not know and only a few thought they did differ. Between half and two thirds considered the conditions of access to work well in practice, while around 10% disagreed, arguing for harmonisation of its contents. In the EU, the most common institutional design relies exclusively on private credit databases , followed by a dual system combining both public and private databases . Five Member States have an exclusively public credit register , while Luxembourg has not set up any credit database. There are no exact figures available on cross-border access to database. EQ6 – How have the provisions relating to the rights of withdrawal and early repayment worked in practice? How frequently are consumers making use of them? Both the right of withdrawal and the right of early repayment are working well, with creditors generally compliant. Overall, more than 70% of consumers are well-informed about both rights. Only around 1% of consumers make use of the right of withdrawal, while the right of early repayment is more commonly used, with around 25% of consumers repaying their loan early, partially or in full. Issues with the right of withdrawal primarily relate to linked credit agreements. For the right of early repayment, key problems relate to the calculation of compensation for creditors. Stakeholders generally considered the right of withdrawal to work well. Over 80% of organisations responding to the Open Public Consultation rated both rights as effective. Article 14 of the Directive defines the right of withdrawal and sets a 14-day period for withdrawal from the contract. Such right of withdrawal applies also to ancillary services. and to linked credit agreements covering contracts for the supply of goods or services for which the consumer excercises a right of withdrawal. Article 16 of the Directive establishes the right of early repayment, which allows the consumer to repay their credit, partially or in full, before the end date of the agreement. Right of withdrawal Most stakeholder groups believe that the right of withdrawal is functioning well. Industry representatives were unanimous in stating that the right of withdrawal is respected, while the majority of enforcement bodies, Member State ministries and regulators, and consumer associations believe it to be working well. 80% of respondents to the Open Public Consultation found the right of withdrawal effective, making it the second most effective provision of the Directive, according to respondents. There are no indications of significant problems in the functioning of the right of withdrawal. The number of consumers withdrawing from credit agreements is very low across Member States, around 1% on average. Consumers are highly aware of the right of withdrawal. The majority were aware (72%) and informed of their right by the credit provider (75%), before signing a credit agreement. There seem to be potential compliance issues in some cases, however, as 15% of the consumers surveyed were not informed of their right prior to signing the contract. Other stakeholders also noted small compliance issues, where credit providers refused to apply the right of withdrawal on consumer request. The extent to which this is the case cannot be ascertained from the data available. Recurring issues with the right of withdrawal mainly relate to a lack of clarity on its application to linked credit agreements. Specific issues raised were cases where the financed object was not mentioned in a linked credit agreement, or where the consumer terminated a credit agreement in accordance with Article 15(1) for a contract for the supply of goods or services, but the seller refused to take back the goods, or where the service provider went bankrupt and the consumer had nowhere to apply for a service or goods return. Another issue with linked credit agreements is the joint liability of the creditor under Article 15(3), as it is not clear whether the creditor is responsible for goods that have not been supplied when the seller disappears or goes bankrupt.

Other problems included lack of awareness of the right of withdrawal in some Member States and difficulties with creditors respecting consumers’ right of withdrawal (with some refusals noted). A significant minority of consumers had experienced creditors making it difficult for them to exercise their right of withdrawal. Consumer associations generally held that the right to withdrawal is well-respected, but a few issues were raised about awareness of the 14-day withdrawal period and delivery of the notice in time. German Courts held consumers had a perpetual right of withdrawal where the consumer does not receive all of the correct pre-contractual information or is given incorrect information, meaning that –under specific conditions- they could withdraw from the credit agreement for an unlimited period of time. Slovakia also has a perpetual right of withdrawal but reported no associated problems. Right of early repayment All industry representatives stated that the right of early repayment is respected, while the majority of other stakeholders agreed that it functions well. According to the Open Public Consultation, 80% of respondents believe the right of early repayment to be effective. In fact, they consider it the most effective provision of the Directive. Despite this, a fairly large number of consumers reported experiencing issues with the right of early repayment. A significant majority of consumers are aware of the right of early repayment, with 75% informed by the creditor about their right before contracting the credit. The number of consumers making use of early repayment is quite high, with around one-quarter of consumers making early payments to pay off their credit. This increased slightly between 2013 (22%) and 2019 (27%). There is no data available on the average cost of early repayments made by consumers. Consumers nevertheless face some problems which primarily relate to the calculation of the compensation to be paid to the creditors, as the compensation was reported to be calculated incorrectly (whether deliberately or not) at times. Several stakeholders also referred to cases of disproportionate compensation fees. It is not possible to ascertain either the extent of the issue or the deliberate nature of any incorrect calculations. Calculation of the fee to be paid in cases of early repayment was more difficult for short-term loans that had to be paid back within one month, for example. Creditors’ concerns centred on their ability to recover the costs of such loans, as Article 16(2) of the Directive stipulates that ‘if the period does not exceed one year, the compensation may not exceed 0.5% of the amount of credit repaid early’. Not all Member States impose a compensation fee for early repayment. Article 16(4)(a) offers Member States the regulatory choice to only apply the obligation to pay a compensation fee to the creditor where the amount repaid exceeds a national threshold, which must not exceed EUR 10,000. Eighteen Member States have opted to use this regulatory choice, thus consumers are not required to pay compensation to the creditor, unless the amount they repay is higher than the national threshold. Other issues reported with the right of early repayment include consumers being charged the entirety of the interest they would have had to pay for the loan and consumers not receiving all of the necessary information about their right of early repayment. In a recent judgment on these issues, the Court clarified that Article 16(1) of Directive 2008/48 gave concrete expression to the right of the consumer to a reduction in the cost of the credit in the event of early repayment by replacing the general concept of ‘an equitable reduction’ with the more specific concept of ‘a reduction in the total cost of the credit’ and by adding that therefore, the reduction must also cover ‘the interest and the costs’. In some cases, consumers were denied the right of early repayment altogether, or creditors included clauses in the general conditions that obliged the consumer to renounce their right. The consumer survey found that more than one-third of respondents had experience of the creditor making it difficult for them to use their right of early repayment, pointing to a relatively high number of compliance issues. Similarly, a 2013 London Economics survey found that while close to one-quarter of consumers attempted to repay early, only 86% were successful in doing so. EQ7 – Have the scope of application and the definitions used in the Directive succeeded in ensuring a high level of consumer protection and performance of the internal market for consumer credit? The scope of application of the Directive has impacted the ability of the Directive to meet its objectives in some cases. For example, the obligation to assess the creditworthiness of the consumer and mandatory rules on pre-contractual information do not apply to loans below EUR 200. As a consequence, in many cases consumers have subscribed to very expensive small value loans without the necessary creditworthiness assessment and the adequate information. In some cases, these expensive loans have contributed to increase households’ over-indebtedness. As a result, there are serious stakeholder concerns about the adequacy of the lower threshold of EUR 200. Many Member States extended the scope of application of the Directive to consumer credit not covered by it, hence the regulatory framework continues to be somewhat fragmented. The wording of the definitions has proved effective, although some ambiguity remains about whether the Directive covers certain types of credits not explicitly referred to in the Directive. Article 2 of the Directive excludes from the Directive’s scope credit agreements involving a total amount of credit less than EUR 200 or more than EUR 75,000, with the exceptions of renovations of immovable property following the entry into force of the Mortgage Credit Directive . The list of exemptions in Article 2(2) is extensive and encompasses many widely used loans, most of which were included within the scope of the Commission’s first proposal for a Directive concerning credit for consumers. The limitation of the scope of the Directive means that Member States have the freedom to regulate credit agreements above or below the thresholds. Nearly all consumer associations (over 90%) argued that the current thresholds are no longer adequate, while slightly fewer (80%) Member State authorities considering them inadequate. Among credit providers 30% considered the scope inadequate . In particular, the lower thresholdwas cited as a problem. The upper threshold of the Directive did not generate as much concern as the lower limit, especially following the amendment to the Directive following the entry into force of the Mortgage Credit Directive (MCD). Except for Cyprus and Greece, all Member States have adopted transposing measures that go beyond the requirements of the Directive. Some extend the scope of application of the Directive (or certain of its provisions) to consumer credit not covered or not entirely covered by the Directive, either below EUR 200, above EUR 75,000 or to leasing agreements, overdraft facilities, revolving credit, mortgages, credit agreements granted free of interest and without anyother charges (i.e. ‘zero-interest rate’ credits) and credit agreements upon the conclusion of which the consumer is requested to deposit an item as security (e.g. credit agreements with pawnshops). The growth of consumer credit – in both volume and value – due, inter alia, to digitalisation and fall of interest rates, has facilitated access to credit for consumers, while bringing new challenges and risks in respect to some aspects falling outside the Directive scope. These include zero interest rate loans, short-term high-cost (STHC) credit, and credit for leasing and hire purchase. By setting the bar for entry within the scope of the Directive at EUR 200, potentially detrimental types of credit are excluded from its protection. These include the STHC-type credit that is more appealing to vulnerable consumers who struggle to access other types of credit due to their existing creditworthiness assessments (CWAs) , as well as zero-interest rate loans. STHC loans are offered in many EU Member States, although the extent to which they are used varies between countries. Under the right circumstances (i.e. properly supervised by the relevant authorities and undertaken by consumers with a good level of financial literacy), these types of credit could help to increase the financial inclusion of consumers with little or no credit history, thereby possibly also preventing them from having recourse to illegal creditors . However, the high cost of such credit represents a risk in itself, particularly as most of the consumers of STHC credit are categorised as risky consumers, meaning that credit providers increase the interest rates to cover the risk of default, which, in turn, makes it more difficult for the consumer to repay. STHC credit also tends to become more expensive over time, worsening the consumer’s financial situation as he or she is forced to either use the rollover option or take up more credit to repay the initial debt. These risks are further exacerbated by a widespread lack of transparency and insufficient disclosure of information to the consumer which, together