Proposal for a Directive of the European Parliament and of the Council on the harmonisation of the laws, regulations and administrative provisions of the Member States concerning credit for consumers
Date: 2002-09-11
Institutions: European Commission
Subjects: approximation of laws, consumer credit, consumer information, consumer protection, contract, cost of borrowing, credit

C 331 E/200

EN

Official Journal of the European Communities

31.12.2002

Proposal for a Directive of the European Parliament and of the Council on the harmonisation of
the laws, regulations and administrative provisions of the Member States concerning credit for
consumers

(2002/C 331 E/39)

COM(2002) 443 final — 2002/0222(COD)

(Submitted by the Commission on 11 September 2002)

EXPLANATORY MEMORANDUM

1. GENERAL POINTS

1.1. Background

Directive 87/102/EEC concerning consumer credit (1), amended in 1990 and 1998 (2), established the
Community framework for consumer credit with a view to promoting the setting-up of a common
market for credit and establishing minimum Community rules to protect consumers.

In 1995 the Commission presented a report on the operation of the 1987 directive (3), following which
the Commission undertook a very broad consultation of the parties involved. In 1996 the Commission
presented a report on the operation of Directive 90/88/EEC amending Directive 87/102/EEC, concerning
the annual percentage rate of charge (APR) (4). In 1997 the Commission presented a summary report of
reactions and comments (5).

The reports and the consultations show that there are enormous differences between the laws of the
various Member States in relation to credit
in
particular. Directive 87/102/EEC no longer reflects the current situation on the consumer credit market
and is therefore in need of revision (6).

for natural persons in general and consumer credit

To this end the Commission ordered a series of studies on various specific issues (7) and carried out a
detailed and comparative study of all the Member States’ national transposal legislation.

(1) Council Directive 87/102/EEC of 22 December 1986 for the approximation of the laws, regulations and adminis-

trative provisions of the Member States concerning consumer credit.

(2) Council Directive 90/88/EEC of 22 February 1990 amending Directive 87/102/EEC for the approximation of the
(OJ L 61,
laws, regulations and administrative provisions of
10.3.1990, p. 14),
itself amended by Directive 98/7/EC of the European Parliament and of the Council of 16
February 1998 amending Directive 87/102/EEC for the approximation of laws, regulations and administrative
provisions of the Member States concerning consumer credit (OJ L 101, 1.4.1998 p. 17).
(3) European Commission, report on the operation of Directive 87/102/EEC, COM(95) 117 final.
(4) European Commission, report on the operation of Directive 90/88/EEC, COM(96) 79 final of 12 April 1996.
(5) COM(97) 465 final of 24 September 1997.
(6) Communication from the Commission — Financial services: enhancing consumer confidence — follow-up to the

the Member States concerning consumer credit

Green Paper on ‘Financial services: meeting consumers' expectations’, COM(97)309 final.

(7) Lea, M.J., Welter, R., Dübel, A.,

‘Study on the mortgage credit in the European Economic Area. Structure of the
sector and application of the rules in the directives 87/102 and 90/88’. Final report on tender n° XXIV/96/U6/21
Seckelmann, R., ‘Methods of calculation, in the European Economic Area, of the annual percentage rate of charge’,
Final Report 31 October 1995, Contract n° AO 2600/94/00101, Reifner, U., ‘Harmonisation of cost elements of the
annual percentage rate of charge, APR’, Hamburg 1998, Project n° AO-2600/97/000169. Domont-Naert, F., et
Lacoste, A.-C.,
‘Etude sur le problème de l’usure dans certains états membres de l’espace économique européen’,
Louvain-la-Neuve 1997, Contrat n° AO-2600/96/000260; Domont-Naert, F., et Dejemeppe, P, ‘Etude sur le rôle et
les activités des intermédiaires de crédit aux consommateurs’, contrat no AO-2600/95/000254, 1996, Balate, E., et
Dejemeppe,
Etude
AO-2600/95/000270 Commission européenne, rapport final.

l'inexécution des

consommation.’

‘Conséquences

contrats

crédit

P.,

de

de

la

à

31.12.2002

EN

Official Journal of the European Communities

C 331 E/201

A number of Member States have meanwhile made it known that they were also planning to revise their
national legislation. This proposal for a directive is an opportunity for the Commission to anticipate these
reforms and to incorporate them in a harmonised Community system.

The Commission departments concerned presented a discussion paper on 8 June 2001 setting out six
guidelines for a revision of Directive 87/102/EEC and in early July 2001 they held consultations with
parties representing the Member States as well as the sector and consumers. The texts proposed in this
proposal for a directive take account of these consultations.

1.2. Overall assessment

Generally speaking, the first point to be made is that the concept of ‘consumer credit’ has undergone
substantial change since the time that this legislation was initially conceived. In the 1960s and '70s we
lived in a ‘cash society’ with credit playing a very small part and involving essentially two products, namely
the ‘hire-purchase’ agreement or ‘instalment plan’ to fund the purchase of moveable property and the
traditional form of credit, the personal loan. Today credit is made available to consumers via a wide range
of financial instruments and it has become the lubricant of economic life. Between 50 and 65 % (1) of
consumers currently use consumer credit to fund the purchase of a vehicle, for example, or other goods or
services and 30 % of consumers enjoy an overdraft facility on their current account. This latter credit
instrument was not even in use in the 1970s to meet consumers’ needs.

In macroeconomic terms the amount of credit circulating in the 15 Member States of the European Union
exceeds EUR 500 000 million, corresponding to more than 7 % of GDP. The annual growth rate is overall
around 7 % (2).

Although credit remains a driving force for economic growth and the well-being of consumers it never-
theless represents a risk for credit providers and, for a growing number of consumers, also the threat of
being surcharged and suffering insolvency.

It is hardly surprising, therefore, that the Member States have found the level of protection available under
the existing directives to be inadequate and have made provision in their legislation to include other types
of credit and/new credit agreements which were not covered by the directives. There have also been signs
that national legislation is to be amended along the same lines.

The result has been a distortion of competition between creditors in the internal market and restricted
scope for consumers to obtain credit in other Member States.

Such distortions and restrictions in turn affect the volume and type of credit sought as well as the purchase
the
of goods and services. Differences in legislation and banking/financial practices also mean that
consumer is unable to enjoy the same degree of protection in all
the Member States as regards
consumer credit.

Consequently, the legal framework currently in place needs to be revised so that consumers and businesses
can benefit fully from the single market.

This would also be a response to concerns expressed repeatedly by consumers. The data gathered for the
Eurobarometer since 1997 reveal a considerable degree of dissatisfaction with the quality of national
consumer protection legislation in connection with financial services:

— more than 40 % consider that the legislation does not ensure enough transparency with regard to

financial services, credit included;

— 40 % consider that the legislation does not provide adequate scope for seeking remedy against banks;

— more than 35 % consider that the legislation does not protect their rights.

(1) cf. Eurobarometer 54, February 2001 ‘Les Européens et les services financiers’ and EB 56, December 2001:

‘Europeans and the financial services’.

(2) See monthly BEU bulletins.

C 331 E/202

EN

Official Journal of the European Communities

31.12.2002

Moreover, no less than 70 % of consumers are calling for greater, European-level harmonisation of the
regulations that protect consumers.

2. SUBSIDIARITY AND PROPORTIONALITY ASSESSMENT

2.1. The aims of the directive as regards Community obligations

Various factors can explain the sluggish development of the European cross-border credit market and these
include, as the main contributing factors:

— technical problems in connection with accessing another market,

— a lack of adequate harmonisation as regards national legislation,

— the changes to the methods and styles of credit that have occurred since the 1980s.

A revision of the directive calls for:

— changes to the legal framework to reflect new methods of credit,

— a realignment of the rights and obligations both of consumers and credit providers to redress the

balance,

— a high degree of consumer protection.

The aim is to pave the way for a more transparent market, a more effective market and to offer such a
degree of protection for consumers that the free movement of offers of credit can occur under the best
possible conditions both for those who offer credit and those who require it.

To achieve these objectives the directive would need to be revised in a way that takes account of the
following six guidelines:

1. a redefinition of the scope of the directive in order to ensure that it reflects the new situation on the

market and is better able to draw the line between consumer credit and housing credit;

2. the inclusion of new arrangements that take account not only of creditors but also of credit inter-

mediaries;

3. the introduction of a structured information framework for the credit provider in order to allow him to

assess more fully the risks involved;

4. a specification requiring more comprehensive information for the consumer and any guarantors;

5. a fairer sharing of responsibilities between the consumer and the professional;

6. the improvement of the arrangements and practices that determine how professionals deal with

payment defaults, both for the consumer and for the credit provider.

2.2. The measure falls within the Community’s competence

The aim of the measure is to establish and ensure the operation of the internal market. The measure will
be conducive to achieving the objective of protecting consumers by harmonising practice within the Single
Market. It is for this reason that Article 95 has been selected as the measure’s legal basis. As a result, the
Commission's proposal is presented to the Council and to the European Parliament for adoption under the
Codecision Procedure provided by Article 251 of the Treaty. Article 95 also requires the consultation of
the Economic and Social Committee.

31.12.2002

EN

Official Journal of the European Communities

C 331 E/203

By resorting to the minimum clause provided by Article 15 of Directive 87/102/EEC and in order to
protect their consumers, Member States have adopted in respect of most aspects of consumer credit
provisions that are more detailed, more precise and more stringent
than those contained in the
directive . These differences will probably make it more difficult to conclude cross-border agreements,
to the detriment of consumers and creditors alike.

The scope of the various national laws transposing Directive 87/102/EEC generally exceeds that of the
directive and it also differs from one Member State to another. Legislation governing consumer credit in a
number of Member States regulates leasing to private individuals with a purchase option, in other words
even the lease itself for movable property held by consumers, whereas other Member States have included
no such agreements in the scope of their legislation.

This means that the various styles of credit agreement calculate rates and costs in a way which differs from
one style of credit to another and from one Member State to another. Directive 87/102/EEC, as amended
by Directives 90/88/EEC and 98/7/EC, therefore introduced the calculation of an annual percentage rate of
charge that covered all interest and costs to be borne by the consumer, allowing him more easily to
compare them. However, there were two recurrent problems affecting the introduction of the APR: first,
the calculation conventions for expressing both the time periods and the rounding of amounts and second,
the fixing of cost — ‘the cost base’ — to be taken into account. To make sure that the APR is completely
reliable and serviceable throughout the Community the Member States must calculate it in a uniform way
and include in the same way all the cost elements linked to the credit agreement. However, despite the
changes introduced by Directive 98/7/EC this is not always the case.

There are signs, for example, of difficulties with substantiating the ‘obligatory’ nature of insurance and
sureties covering the repayment of the credit. The fact that they are obligatory means that they have to be
included as costs in the cost base and this prompted a number of Member States to regulate this area
beyond the requirements of the directive by use of the minimum clause. The exclusion of certain types of
costs from the directive serves no (or no longer any) purpose and several Member States have therefore
included these costs in their national cost bases. There are also a number of cases where the directive is
not sufficiently clear, for example with regard to the effect of the commissions payable to intermediaries or
taxes due when the credit agreement is concluded or performed. All of the foregoing means that there can
be differences of ten, twenty or more percent depending on how strictly a Member State defines the
composition of its cost base.

This proposal for a directive contains a reassessment both of the calculation conventions and of the
inclusion or exclusion of certain costs on the basis of their economic justification so that a minimum
of credit costs will be excluded and a maximum of clarity achieved. This should, as a rule, bring about the
maximum possible harmonisation of the national cost bases and a greater degree of uniformity as regards
calculation.

These measures for comparing costs are only feasible if implemented on a European scale. They will only
have sufficient impact if the directive is applicable to all credit agreements offered to consumers.

Further examples can be provided: for example, the Member States' legislations use different procedures
and apply different time limits for ‘withdrawal’, ‘cooling-off’ and ‘cancellation’ in connection with a credit
agreement. These differences in terms of periods of time and procedure create obstacles for creditors who
would like to offer credit in other Member States but face a waiting period of three days in Luxembourg, a
period of seven days in Belgium and in the case of France they are not permitted to take any action on the
credit agreement for the duration of the cooling-off period, while in other cases the credit agreement must
include references to any time periods or procedures involved. The various legislations do not lay down
the conditions governing the drawing up, conclusion and cancellation of credit agreements in a uniform
way and distortion of competition is the result.

C 331 E/204

EN

Official Journal of the European Communities

31.12.2002

Some Member States absolutely forbid the door-to-door selling of credit agreements to consumers while
others require a cooling-off period or even take particular steps when aggressive marketing is detected.
Something that is perfectly legal
in one Member State may lead to conviction in another. A creditor
working in a very strictly regulated Member State could access the market more easily in another Member
State that is less strictly regulated and would consequently have an advantage over his competitors.

In the event of the non-performance of a credit agreement or surety agreement a creditor will be faced
with different procedures and time limits for injunctions depending on whether the consumer is a resident
of one Member State or of another. The legislations of the Member States differ considerably with regard
to waiting periods before any action can be taken in respect of consumers, guarantors or the repossession
of goods. Longer periods and special procedures entail extra costs for creditors, who must run the risk of
the agreement remaining unperformed and they may be at a disadvantage compared with a competing
creditor who has no extra costs or operates in a less strictly regulated environment while all the time
having granted credit to the same consumer.

Measures offering a high degree of consumer protection have been drawn up in accordance with Article
153(1)(3)(a) of the Treaty in conjunction with Article 95, as mentioned earlier. The aim of these protective
measures is to strengthen the provisions put in place to establish the single market and they should enable
the Member States to accept maximum harmonisation with no need for a general resort to further
protective measures.

It is with this aim in view that this directive encourages recourse to out-of-court arrangements before
initiating recovery procedures, the consistency of such recovery procedures with the content of the
agreement, the striking of a balance between the interests both of the creditor and the consumer when
payments are late, the defence of the interests of both parties when agreeing the repossession of goods
financed with the credit and the possibility for the consumer to change to a different creditor, if necessary,
without having to pay an unjustifiable indemnity.

2.3. The instrument most suited to the aims pursued

The measure proposed is aimed at satisfying the needs of the single market by establishing common and
harmonised rules applicable to all actors — creditors, credit intermediaries etc., — thus allowing creditors
to make their services more easily available and consumers to enjoy the high degree of protection.

The idea of introducing uniform legislation in the shape of a regulation that would be directly applicable
under the national legislation of the Member States without transposal was studied but rejected. A directive
will enable the Member States to amend the legislation in force subsequent to the transposal of Directive
87/102/EEC to the extent that is needed to ensure compliance. In drawing up its proposal for a directive
the Commission has endeavoured to strike a balance reflecting the maximum possible extension of the
scope of the directive to include all styles of credit and surety agreements and the desire to contain the
impact of such a reform on the Member States'
legislative systems. In view of the new approach to
harmonisation and the many substantial changes that have been made, this new proposal will replace
Directive 87/102/EEC as amended by Directives 90/88/EEC and 98/7/EEC.

2.4. Advantages of the directive being proposed

Harmonising the rules applicable to consumer credit will improve the operation and stability of European
credit markets.

improve the operation of the market because the scope for cross-border
The proposed directive will
activities within the Single Market will be extended and competition on the market will
increase.
Although the rules are the same both with regard to creditors, credit intermediaries, consumers and
guarantors the latter should feel more confident about credit that in some cases is unfamiliar and
provided at rates or in forms that are very interesting and offered by creditors or intermediaries based
in other Member States.

31.12.2002

EN

Official Journal of the European Communities

C 331 E/205

The directive will improve stability by putting in place a raft of provisions on responsible lending, on
providing information and protection both when the credit agreement
is concluded and during its
performance (or in the event of its possible non-performance) that will reduce the probability of a
creditor or credit intermediary being able to mislead consumers in another Member State or jeopardise
their financial situation or even of acting irresponsibly. The directive being proposed, and in particular its
provisions relating to the prevention of overin-debtedness, together with the rules on consulting central
databases, will further improve the quality of loans and lessen the risk of consumers falling victim to
disproportionate commitments that they are unable to meet, resulting in their economic exclusion and
costly action on the part of Member States’ social services.

3. EXAMINATION OF THE ARTICLES

Article 1 (aim)

The aim of this directive is to secure maximum harmonisation with regard to the credit on offer to
consumers by guaranteeing them a high level of protection. All types and forms of credit that are available
to private individuals will, in principle, be harmonised. It is for this reason that the title of the directive is
worded ‘credit for consumers’ rather than ‘consumer credit’. The few exceptions to the scope of the
directive, which is very broad compared with that of Directive 87/102/EEC, are listed in Article 3.

The directive also covers surety agreements. The harmonisation being sought for these agreements will
centre mainly on the information to be provided to consumers concluding such agreements, even if they
guarantee credit that is granted for employment-related purposes.

Article 2 (definitions)

This article defines a number of the terms used in the directive. In principle, the terminology is identical to
that of Directive 87/102/EEC. A number of changes have been introduced to cover the broader scope of
the directive or to clarify some concepts. A number of new definitions have been included to cover recent
additions to the text.

The definitions of ‘creditor’, ‘consumer’ and ‘credit agreement’ have undergone no change compared with
the text of the original directive, with the exception of an improvement to the manner in which the
concept of ‘agreement promising to grant credit’ is included. All credit transactions are covered, including
promises to conclude agreements.

Credit agreements for the supply of services are also covered.

The second sentence of the definition is not intended to create an exemption. The sentence clarifies cases,
such as the supply of gas water or electricity where the — continuous — supply of the services is in step
with a corresponding payment but where no ‘credit’ is granted.

The concept of ‘credit intermediary’ is a general concept which could cover several types of activity and
several categories of intermediary:

— an agent who is delegated and authorised to sign — exclusively — on behalf of the creditor;

— a credit broker, in other words a self-employed person working under his own name who submits

credit applications to a number of different creditors;

— a ‘supplier of goods or provider of services’, in other words a person, (such as a salesman) who can be
either a delegated agent or a credit broker, even a creditor who immediately transfers his rights to
another creditor/principal funds provider who will (co)decide on the granting of credit and whose role
as broker is no more than an activity supporting his principal one, namely the sale of products or
services.

The definition proposed covers any person who assists in the conclusion of a credit agreement, in other
words not only the credit broker but also the delegated agents or bank agents as well as the suppliers of
goods and the providers of services, main or subsidiary business undertakings,
including marketing
assistants.

C 331 E/206

EN

Official Journal of the European Communities

31.12.2002

The directive thus covers any person who provides a creditor with information to identify a consumer and
directs the latter, for a fee, to a creditor for the conclusion of a credit agreement. This fee may take the
form of cash or some other agreed form of consideration, such as computer support, access to the
creditor’s business network or overdraft facilities, for example. In principle, lawyers and notaries are not
covered even if a consumer approaches them for advice about the scope of a credit agreement or if they
provide assistance in the drafting of an agreement or authenticate it, as long as their role is limited to
providing legal advice and they do not direct their clients to particular creditors.

The ‘surety’ agreement covers all sureties, both personal and in material form: bonds, joint and several
liability, mortgages and sureties etc. The agreement must be signed by a consumer, known as the
‘guarantor’
in order to distinguish him from the consumer who has concluded the credit agreement.
The surety agreement may relate to any credit transaction undertaken for private or employment-related
reasons provided that the guarantor is not acting in a professional capacity.

The ‘total cost of credit to the consumer’ must include all costs linked to the credit, including interest and
other indemnities, commissions, taxes and charges of any kind that the consumer is required to pay for the
credit, whether or not these costs are payable to the creditor, to the credit intermediary, to the authority
responsible for levying taxes on a particular style of credit or to any other third party authorised to
demand payment for services as an intermediary or in connection with the conclusion of a credit
agreement or surety agreement. Although Directive 87/102/EEC already includes this interpretation, the
definition has been amended slightly to clarify the inclusion of some costs but without producing a
positive and exhaustive list of all cost elements.

The concepts of ‘sums levied by the creditor’ and ‘total lending rate’ are new compared with Directive
87/102/EEC and will make it possible clearly to identify the costs that are specific to the credit service
offered and are payable to the creditor as distinct from all other associated charges payable to third parties,
such as notary’s fees, surety charges, commissions due to credit intermediaries, optional insurance charges
and the like.

The borrowing rate is the interest rate used to calculate a regular payment reflecting the amount of credit
drawn down and the duration of the drawdown and it excludes all other costs. An indication of this rate
will enable consumers to check the interest that they are required to pay for a given period. Article 6 of
Directive 87/102/EEC used the term ‘annual rate of interest’ but gave no other details. Some Member States
opted for an annual percentage rate in conjunction with the equivalent method for conversion, where the
credit was long-term credit, possibly involving a mortgage. There was a need for them to avoid the
periodic rate being calculated in an infinite number of ways using different pro rata temporis rules that
are only very vaguely linked to the linear nature of time. Other Member States permit a nominal periodic
rate using a proportional conversion method. This directive seeks to make a distinction between any
further regulation of the interest rates and the annual rates and indicate only the rate that is used.
However, the term ‘borrowing rate’ has been kept in order to distinguish it from a lending rate or the
rate of interest earned by savings.

The borrowing rate is thus a rate that on the basis of a particular method devised by the creditor allows
the interest due on capital drawn down to be calculated periodically. This rate is different from the rate
known as the ‘charge’ rate, that some Member States use, which is a rate calculated on the net price of
goods or services to be financed but one that does not provide added value for the consumer. The annual
percentage rate of charge will make it possible to pinpoint the true ‘weight’ of the method used to calculate
this borrowing rate.

The term ‘residual value’ is frequently used in connection with leasing. The payment of the residual value
when the option to purchase is taken up or when the credit agreement expires must enable the consumer
to become the owner of the goods financed.

31.12.2002

EN

Official Journal of the European Communities

C 331 E/207

The expression ‘credit drawdown’ refers to the amount that a consumer may draw down or has drawn
down as a single transaction at any given time. It represents the overall amount of credit that may be
drawn down and in principle it marks the upper limit, in other words ‘the total amount of credit’.

The definition of the ‘durable medium’ is the same as that used in the Directive of the European Parliament
and of the Council of [. . .] on the protection of consumers in respect of distance contracts and amending
Directives 97/7/EC and 98/27/EC.

The term ‘third party providing constitution of capital’ identifies the person other than the creditor or the
consumer who undertakes in respect of the consumer, and where necessary the creditor, to constitute the
capital due under the terms of a credit agreement so that the consumer is able to reimburse the creditor in
accordance with the conditions of the credit agreement. This person will normally be an insurer or an
investment fund.

Article 3 (scope)

This article defines the types of agreements to which the directive applies. Directive 87/102/EEC applied
only to credit agreements (1). It thus covered an agreement whereby a creditor grants or promises to grant
to a consumer credit in the form of a deferred payment, a loan or other similar financial accommodation.
This proposal for a directive is intended to extend the scope to include any guarantor, and thus any
consumer, who stands surety, whether in person or in material terms and regardless of whether it covers
credit granted to a consumer or to a trader. These persons must be provided with a minimum amount of
information and protection similar to that enjoyed by the consumer/borrower (2).

The exemptions permitted by Article 2 of Directive 87/102/EEC concerning minimum and maximum
amounts, free credit or credit at a reduced rate of interest, hiring agreements with an option to purchase
goods or services, credit agreements in the form of an authentic act, credit in the form of advances on a
current account, authorised, non-authorised or tacit overdraft as well as any other form of short-term
credit involving charges or interest to the consumer need to be removed. (3)

There is, however, a case for exempting credit agreements, the purpose of which is to grant credit for the
purchase or transformation of a private immovable property as covered by a Commission recommen-
dation. However, the directive will apply to such credit agreements if their purpose is to finance, possibly
by means of a new drawdown of credit, transactions other than the purchase or transformation of private
immovable property.

There should also be exemptions in respect of agreements with provision for deferred payment or similar
financial accommodation, possibly involving the use of a payment or debit card, where such transactions
are free of charge and completed within three months.

(1) Court of Justice. Judgment of 23 March 2000, Case C-208/98, Berliner Kindl Brauerei AG.
(2) Similar or comparable legislation in the MS — non-exhaustive list for F, UK, L, B, IRL, and S.
(3) The Member States have comprehensively stretched the limit of scope of Directive 87/102/EEC. Similar or
comparable legislation in the Member States — a non-exhaustive list grouped by exemption: Art. 2(1)(a) IRL, F
(in part), NL, A. (moreover, several MS, including Belgium, have clear cut protective legislation); Art. 2(1)(b) IRL, F, L,
UK, B, NL; Art. 2(1)(c) DK, NL, F, IRL, B; Art. 2(1)(d) DK, NL, F, IRL, B; Art. 2(1)(e) D, F, P, B, DK, A, UK; Art. 2(1)(f)
D, A, DK, IRL no upper limit; B and S very fragmentary upper limit, F and NL fragmentary upper limit, L and UK
higher upper limit IRL, F, NL no lower limit, S and B fragmentary lower limit, L lower minimum; Art. 2(1)(g) B, F,
IRL, L, NL; Art. 2(2) Exception cited only by IRL, UK (Credit Unions), NL, B (social loans), and D (credit from
employers). New text covers NL, B and D; Art. 2(3) A, IRL, in part NL and L; Art. 2(4) Exclusion linked to and to be
compared with 2,1, a).

C 331 E/208

EN

Official Journal of the European Communities

31.12.2002

This directive is not intended to cover situations where an employer occasionally, and not as part of his or
her main business or professional activities, grants credit or an advance on his or her salary to a member
of his or her staff. However, there is no case for allowing Member States to exempt from the scope of this
directive certain forms of credit that are made available to particular groups of people or at a reduced rate
of interest under special circumstances, where such credit is offered systematically as part of business or
professional activities either to members of a cooperative created specifically for the purpose or whenever
an employer sets up a ‘credit’ facility within his or her undertaking. In such cases the credit must be
granted with the same degree of caution as that required under this directive and be accompanied by the
same amount of information, advice and measures aimed at protecting consumers.

Lastly, there is a case for exempting credit agreements concluded between investment firms such as those
referred to in Article 1(2) of Directive 93/22/EEC and investors (1). Such agreements cover credit of a very
specific type to which similar provisions apply, in particular as regards information and advice.

Article 4 (advertising)

‘any advertisement, or any offer which is displayed at
Article 3 of Directive 87/102/EEC states that:
business premises, in which a person offers credit or offers to arrange a credit agreement and in which
a rate of interest or any figures relating to the cost of the credit are indicated, shall also include a statement
of the annual percentage rate of charge, by means of a representative example if no other means is
practicable’. The purpose here was to avoid unfair or misleading advertising based on the display of a
rate of interest or of a cost without the consumer being advised of the real cost of, or rate for, the credit
agreement.

The wording of Articles 1(a)(3) and (3) shows that from the outset the Member States were in doubt as to
the scope and methods for calculating the annual percentage rate of charge (APR). A number of
derogations were therefore accepted that would allow the reference to the APR to be replaced by an
approximate method using a representative example wherever it was impossible to state the APR in clear
and simple terms without, however, explaining either the exact circumstances under which the represen-
tative example was to be used or how it was made up. It was, in fact, always possible to calculate an APR
but this involved using the assumptions listed in Article 1(2)(7) of Directive 87/102/EEC as replaced by
Article 12 of this proposal for a directive.

The advantage of a reference to the APR compared with a separate reference to the various cost elements
— annual or periodical — is that the APR takes account of the ‘periods’ at which the creditor requires
payment. The APR is thus the prime indicator par excellence of the weight of the cost to be met during a
given period in connection with the repayment of any kind of credit agreement. However, it was not
always clear beforehand in connection with advertising what
the frequency of drawdown and/or
repayment would be and this explains the need for the use of assumptions. It is possible, however, that
in certain circumstances, such as the case of advances on current accounts, that three or four assumptions
might be applicable at the same time: immediate drawdown, repayment after one year, fixed rate for a
given period. Imposing a requirement that similar information in a representative example should be made
available via audiovisual advertising could be seen as disproportionate and the prohibiting of any reference
to cost or rate in the cases covered by Article 3 appears equally inconceivable.

The most flexible solution proposed in Article 4 of this proposal for a directive is to include a reference to
the provisions of Directive 84/450/EEC of 10 September 1984 concerning misleading and comparative
advertising. An assessment of the misleading content will depend on the type of credit agreement and on
the factual information accompanying the advertising.

(1) OJ L 141, 11.6.1993, p. 27.

31.12.2002

EN

Official Journal of the European Communities

C 331 E/209

Article 5 (ban on negotiation of credit and surety agreements outside business premises)

A number of Member States (1) found the active door-to-door selling of credit agreements unthinkable in a
normal commercial relationship between a creditor or credit intermediary and a consumer, in particular
given the impact of door-to-door selling on consumers’ commitments. Door-to-door selling of credit
agreements may have particularly serious consequences for consumers who, in the situation referred to
in Directive 85/577/EEC (2) and in spite of the protection afforded by the said directive, are unable to
assess the full financial impact of any credit agreement that is concluded. The impact will not be felt until
the first repayment is made. In view of the specific nature of the credit and the attendant financial
consequences it has been deemed necessary to adopt a stricter approach than that required by Directive
85/577/EEC and to ban any unsolicited door-to-door selling of credit of the type to which this directive
refers. It is therefore proposed that there should be a ban on credit agreements and surety agreements
concluded under circumstances that are similar to those for agreements described in Article 1 of the said
directive with provision for the fact that the term ‘trader’ can relate both to a creditor and to a credit
intermediary.

Article 6 (exchange of information in advance and duty to provide advice)

This article regulates the information to be provided for consumers in advance and the duty on the part of
the creditor or credit intermediary to provide advice (3).

The creditor and, where appropriate, the credit intermediary may only ask information of the consumer or
garantor that under the terms of Article 6 of the directive is appropriate, relevant and does not exceed that
which is required for the purpose for which the information is collected and processed. The consumer and
the garantor are required to answer sincerely the precise questions put by the creditor and, where
appropriate, the credit intermediary.

Before the credit agreement is concluded the consumer must be provided with enough information about
the cost of the credit and his obligations. The rules proposed mainly reflect that which was stipulated
concerning information in advance in the Commission's recommendation of 1 March 2001 on
pre-contractual information to be given to consumers by creditors offering home loans (4). The information
must therefore cover all aspects of the credit agreement (whether it is a fixed-rate or variable-rate credit
agreement, what conditions govern variations in the rate, drawdown, repayment etc.) and some of this
information must constitute the compulsory information to be included in the credit agreement. As
regards distance contracts the preliminary information must be provided in a way that is consistent
with the requirements of Article 5 of Directive . . . of the European Parliament and of the Council on
the distance marketing of consumer financial services and amending Council Directives 90/619/EEC,
97/7/EC and 98/27/EC.

The tailored information must include a reference to the annual percentage rate of charge. The APR
mentioned in the said information must be the same as the final APR shown in the credit agreement
unless it is based on contractual elements that are unknown when the information is provided. The
consumer should at least know that assumptions have been used and what they are so that he can be
notified and is able to check the components of the APR and, by extension, of the credit being offered:
amounts to be drawn down, amounts to be repaid and the periods. The same argument must apply to the
total lending rate. Any reference to a rate or a cost that does not feature in any such assumption is
considered to be misleading. It is with this aim in view that for distance credit agreements the preliminary
information is given over the voice telephone as referred to in Article 3(3) of Directive . . . must include
the APR and the total lending rate as well as their respective components.

(1) Similar or comparable legislation in the MS — non-exhaustive list: UK, B and L; partial legislation in respect of

certain effects or door-to-door selling situations: IRL and NL.

(2) See Court of Justice. Judgment of 13 December 2001, Case C-481/99.
(3) Similar or comparable legislation in the MS — non-exhaustive list: paragraph 1 and paragraph 2: most of the MS,
for example, F and B: offer in advance, NL: prospectus; IRL and L: information relating to advertising, the activities
pursued by the credit provider, UK: the duty to provide information and to specify this information for each credit
agreement etc. paragraph 3: B

(4) JO L 69, 10.3.2001, p. 25.

C 331 E/210

EN

Official Journal of the European Communities

31.12.2002

The use of assumptions is limited. Article 1(a)(7) of Directive 87/102/EEC already imposed strict conditions
which have been incorporated into this proposal for a directive. Replacing the timetable by the assumed
full repayment after one year, for example, is only possible if the said timetable is not shown in the text of
the agreement or is not evident from the means by which the credit granted is to be paid.

As regards the creditor and, where appropriate, the credit intermediary, there is a need to ensure that they
have a general duty to provide advice so that the consumer can choose the best type of credit from the
range normally offered by the latter. This advice must take account of the consumer's ability to repay, the
risk entailed, the existence or not of a fixed timetable, the scope for drawing down the credit and the
purpose for which the credit sought is to be used.

Article 28 of the directive regulates the status of credit intermediaries who, without being registered, work
for a licensed creditor or a credit intermediary who assumes responsibility for them. Here, the credit
intermediary must provide the information and advice but responsibility is assumed by the licensed
creditor or credit intermediary. Article 6(4) regulates the case where a credit intermediary is a supplier
of goods or a provider of services that are only subsidiary in terms of their impact on the procedure for
offering and concluding the credit agreement. The duty to provide information and advice is thus fully that
of the creditor or the credit intermediary for whom this supplier acts when concluding credit agreements,
possibly acting as a marketing assistant.

Article 7 (collection and processing of data)

information that

the consumer or the guarantor provides in connection with the
Highly personal
is frequently
conclusion, management or performance of a credit agreement or surety agreement
collected for the purpose of processing it
for applications other than risk assessment: advertising,
marketing, offers of insurance contracts, marketing and sales of such data to third parties etc. The
consumer's agreement is often obtained using the credit application form or a clause featuring in the
credit or surety agreement that under certain circumstances do not allow the consumer really to refuse in
view of the risk he would run in having the credit or the financial accommodation withheld. In most cases
the consumer is even unaware that he has put his signature to such a clause.

This article authorises the collection and, a fortiori, the processing of this information by persons acting in
the transactions covered by this directive only in order to assess the financial circumstances of the
consumer or of any guarantor and of their ability to repay. It is, in other words, a formal obligation
that rules out any purpose linked to marketing or the sale of personal data collected under the terms of
this directive. The directive must offer an assurance that the obligation, referred to in Article 6, namely
without prejudice to the application of Directive 95/46/EC, to provide data that in some cases are highly
personal and sensitive, to the creditor and the credit intermediary is complied with. However, this clearly
defined objective applies equally to information collected during the management of the credit or surety
agreement and this includes non-performance. The persons concerned are therefore not only creditors and
credit intermediaries but also information bureaux as well as credit insurers whom the creditor contacts in
his information search in accordance with Article 9. The list could be extended to include debt recovery
agencies and in general any person who takes over the debt owed to the creditor.

Article 8 (central database)

The avoidance of overin-debtedness, both on the part of the consumer and of the guarantor, is a matter of
general interest. The setting-up of centralised databases can to an extent solve this problem and at the
same time the creditor could be made responsible by the imposition of civil and trade sanctions if on the
basis of the information he obtained he ought to have decided not to grant new credit. The Member
States (1) should make it compulsory to maintain a central database holding negative, neutral and reliable
data recording late payments, containing identification of consumers and guarantors and covering at least
the territory of the Member State in question with guaranteed access to all creditors.

(1) Similar or comparable legislation in the MS — non-exhaustive list: the situation differs widely from one MS to
another: NL and B: virtually similar legislation but extended to include positive files, D, A and I: positive files that go
beyond the positive recording of data on credit and surety agreements with no consultation requirement; F and DK:
only negative files with no consultation requirement. By way of contrast, UK: no central database, virtually unre-
stricted freedom to set up private decentralised databases with no common criteria or consultation requirement.

31.12.2002

EN

Official Journal of the European Communities

C 331 E/211

Article 8 makes the existence of such a database compulsory and introduces a common platform for
accessing, processing and consulting the data.

The final paragraph in Article 8 has provision for the Member States to go further by setting up central
positive databases recording all consumer commitments relating to credit. The creditor would thus have at
his disposal an instrument that is more reliable than a negative database and which would offer him scope
for checking whether a consumer, or possibly a guarantor, had concluded other credit or surety
agreements that have not been the subject of litigation but where the associated total financial burden
rules out the receipt of any further credit.

The concept of ‘responsible lending’ as it appears in Article 9, obliges the creditor to consult the central
database before the consumer can conclude a credit agreement or a guarantor has undertaken to guarantee
repayment of the credit in question. Clearly, consulting this central database is for the creditor no more
than an initial and helpful indication that must be backed up by other measures, as described in Article 9.
Nevertheless it is considered appropriate that for the sake of transparency the creditor should inform the
consumer, at his behest, of the results of this consultation of the centralised data base. This information
must enable the consumer and the garantor, if necessary, to require the controller of the file to carry out
any corrections that are necessary.

The database may only be consulted on a case-by-case basis. The data released by the database may be
used only for assessing the risk of non-performance of the credit or surety agreement and any marketing
or sales application is prohibited. The personal data may be held only for the time needed to assess the risk
and must be then immediately destroyed once the credit or surety agreement has been completed or the
credit application turned down. The controller of the file at the central database may, however, retain a
record of the consultation and if required may make it available to the person concerned in court if, for
example,
the responsibility of the creditor were to be called into question or contested under the
provisions governing ‘responsible lending’.

Article 9 (responsible lending)

Some Member States (1) have a number of rules in connection with credit requiring creditors to apply
caution or to act as ‘good creditors’. This article is intended to establish a similar principle on a European
scale, not only in the interests of all consumers or guarantors but also of all creditors. The latter are at risk
of seeing their clients’ solvency diminished because their competitors subsequently conclude credit
agreements under circumstances that seriously jeopardise the consumer’s or the guarantor’s ability to
repay.

The principle of ‘responsible lending’ represents an obligation to consult centralised databases and to
examine the replies provided by the consumer or the guarantor, to request the provision of sureties, to
check the data supplied by credit intermediaries and to select the type of credit to be offered. It is not an
obligation targeted at obtaining results such as the existence or otherwise of fault on the part of the
consumer. Similar rules requiring caution call, moreover, for an assessment of the facts and for an
examination on a case-by-case basis, preferably by the legal authorities. Any assessment by the creditor
of a consumer’s ability to repay is, however, in no way impartial: he is contractually bound and it is matter
of some importance that the link should be made clear between the conclusion of the credit agreement
and the preliminary assessment..

This provision is without prejudice to the obligation on the consumer to act with prudence when he looks
for credit and to respect his contractual obligations.

Article 10 (information that must be included in credit and surety agreements)

As regards the information that must appear in the credit agreement, Article 4(2) of Directive 87/102/EEC
indicates that only a minimum of information is to appear. The third paragraph of this Article makes a
reference to the Directive’s Annex I that lists the ‘essential’ conditions which the Member States may
the Member States have therefore
require to be mentioned in the written agreement. Almost all
regulated the form and content of credit agreements in a general manner and other specific credit
agreements in a variety of ways.

(1) Similar or comparable legislation in MS — non-exhaustive list: NL, B and for guarantors F and S.

C 331 E/212

EN

Official Journal of the European Communities

31.12.2002

The first paragraph of Article 10 contains a paragraph common to credit agreements and surety
agreements alike. All the parties must receive a copy of the credit agreement, including the credit inter-
mediary who, strictly speaking, is not a ‘party’, but who needs to be kept informed, in particular regarding
the payment of his salary. Both the credit agreement and the surety agreement must contain an indication
of any extrajudiciary procedures that might apply.

Article 10 of this directive proposes that there should be a complete and compulsory list of information,
essentially the information referred to in Article 6. If a minimum of compulsory information in the credit
agreement is required, there is also a need for this information to be relevant, legible and accurate and for
it to be consistent with the information that was provided prior to the conclusion of the credit agreement.
The general conditions,
in particular those governing the operation of an account or that regulate a
variable rate of interest, form an integral part of the credit agreement.

The total amount of credit must always be shown (since no creditor grants limitless credit) and this
amount cannot be changed without a new agreement (novation). The words ‘if any’ appearing in the
Annex to Article 4 of Directive 87/102/EEC have therefore to be deleted. Some creditors set intermediate
upper limits and raise (or lower) these upper or lower limits unilaterally depending, inter alia, on whether
the consumer makes regular repayments or not, whether or not he uses his credit line, whether the credit
is profitable or not or whether the national maximum rates have changed.

If one of the parties seeks to increase the total amount of credit (i.e. raise the upper limit), he must request
a new contract and the creditor is obliged to carry out a new solvency check (which implies that ‘inter-
mediate upper limits’ are not, or no longer, permitted.

The reference to the ‘amount drawn down’ in the credit agreement is pointless and has been removed. On
the other hand, additional information relating to Article 6 of this proposal for a directive is required and
this information should include the amortisation table, a reference to the object being financed in the case
of an ‘assigned credit’, any cash downpayment required if it relates to hire purchase and the rates and
charges applicable should the credit agreement not be performed.

Surety agreements must also contain a minimum amount of data, namely a reference to the ‘amount
guaranteed’ and the charges associated with the non-performance of the surety agreement that are quite
separate from those of the credit agreement. Charges associated with the conclusion of the surety
agreement are in practice payable by the consumer and should therefore be included in the annual
percentage rate of charge. Even if the guarantor were required to pay them himself he would under
national law in all the Member States be entitled to seek remedy against the consumer, which means that
the payment of any such debt should also be included in the total cost of the credit.

Article 11 (right of withdrawal)

The cooling-off period and the option to withdraw are well-established traditions (1) by means of which the
consumer may release himself from an ill-considered commitment and change a decision taken at a time
when the pressure applied by the salesman outweighed the consumer’s free and enlightened will to choose.
This article proposes there should be the option of withdrawal under circumstances similar to those
referred to in the Directive of
the Council [. . .] on the distance
marketing of consumer financial services and amending Council Directives 90/619/EEC, 97/7/EC and
98/27/EC. The Commission has selected this approach in order to harmonise the procedures for exercising
the right to withdrawal in similar situations. The Commission is aware of existing differences in other
directives on consumers’ rights. As it reported in its Strategy for Consumers 2002-2006 the Commission is
planning a revision of the matter to follow up its Communication on European Contract Law.

the European Parliament and of

(1) Almost all the MS have something similar. Similar or comparable legislation in the MS — non-exhaustive list: B:
right of ‘renonciation’ during a period of seven working days, R: ‘rétractation’ period lasting seven days, IRL right to
‘withdraw’ for 10 calendar days, L: right ‘à se départir’ but only for credit agreements granted by a supplier and
within two days. UK: ‘cooling-off period’ various arrangements, D and A: ‘Widerrufsrecht’.

31.12.2002

EN

Official Journal of the European Communities

C 331 E/213

The article is not an obstacle to the immediate drawing-down of credit. The creditor may in this instance
require a consumer who is exercising his right to withdrawal to pay a maximum indemnity that is
consistent with the amount obtained by applying the annual percentage rate of charge to the amount
drawn down with effect from the date of drawdown and up until such time as the APR ceases to apply
following the repayment of the funds or the return of the goods. Any such indemnity would be very small
in the case of small amounts of credit but it should at least help to stem abuse and speculation in the case
of larger amounts. Moreover, the consumer will be required to return the goods that he obtained in
connection with the credit agreement to the creditor whenever the credit agreement stipulates that the
goods are to be returned. Where there is a legal difference between a credit agreement and a purchase
agreement the consumer will be required to honour the purchase agreement unless it was concluded as a
resolutive condition linked to the conclusion of the credit agreement.

Article 12 (annual percentage rate of charge)

Article 12 shows how the annual percentage rate of charge is calculated. It replaces and extends Article 1(a)
of Directive 87/102/EEC as inserted by Directive 90/88/EEC.

The formula for the annual percentage rate of charge, to which reference is made in Annex 1, is retained
with the exception that different terminology is used to reflect the new definitions appearing in the
proposal for a directive. The proposal
is for complete standardisation in respect of rounding-off and
what is understood by a year. Only the method for calculating fractions of a year has been retained.
Annex 2 shows a number of examples of calculations that cover all types of credit agreement.

The total cost of the credit must include all costs, including borrowing rate plus all the other indemnities,
commissions, taxes and charges of any kind that the consumer is required to pay for the credit regardless
of whether these costs are payable to the creditor, to the credit intermediary, to the competent authority
levying the taxes or to any other third party authorised to receive payments following the brokering or
conclusion of a credit agreement or surety agreement.

Directive 90/88/EEC established two exemptions and these have been retained in paragraph 2: the charges
for non-performance and the charges payable in cash or by credit. Clarification is provided regarding some
‘media’ associated with the credit agreement: cards and accounts. Charges linked to these media must be
included in the total cost of the credit and thus also in the APR unless the creditor has clearly and
distinctly defined in connection with these media the costs that are linked to credit transactions and the
costs that are linked to other payment transactions.

Clearly, any insurance guaranteeing repayment of the credit reduces the level of risk to which the creditor
is exposed and the premium in such cases must be viewed as a constituent element of the cost of the
credit. This principle has been kept for certain types of insurance in exemption (v) of Article 1(a) of
Directive 87/102/EEC. Some Member States (1) have broadened the ‘freedom of choice’ aspect to include
other types of insurance and have widened the concept of ‘total cost of the credit’ to include any
compulsory insurance, the premium for which must be included in the calculation of the APR. These
countries have noted that there was in practice no freedom of choice for consumers and that the creditor,
acting with circumspection or with a view to his profits, preferred to negotiate — automatically —
insurance cover even if the consumer had not initially asked for such insurance. The Member States
also had problems proving the ‘compulsory’ aspect of the insurance and sureties covering repayment of
the credit as the compulsory nature of such was the condition governing their inclusion as cost elements
in the base. This proposal for a directive aims to end this discussion by proposing to include automatically
any insurance premium in the total cost of the credit, provided that the insurance is taken out at the time
that the credit agreement is concluded.

(1) Similar or comparable legislation in the MS with regulations that in general terms exceed the directive by guaran-
teeing a fuller base: B, E, F, NL, A, S; MS with unique solutions or which include the insurance charges: B, DK, E, F,
NL, A, S, UK.

C 331 E/214

EN

Official Journal of the European Communities

31.12.2002

invalidity, sickness and unem-
On the other hand, the gains resulting from insurance covering death,
ployment, namely the amount corresponding to early repayment of the capital and early repayment
indemnity or the commitment fee, are not to be included in the APR. The payment of these amounts
is not agreed on an exact date shown in the credit agreement and the consumer, in point of fact, has no
plans to effect such transactions.

However, the gains from life assurance covering reconstitution of the capital when the credit agreement
comes to term amounts to an obligation within a period and on an agreed date even if the conditions are
described in an additional agreement annexed to the credit agreement.

Whenever necessary, a number of the assumptions referred to in paragraphs 3, 4 and 5 should be used to
calculate the annual percentage rate of charge. The consumer should be notified of these assumptions
every time that a calculation is carried out that is based on them. They may only be used if the
constituents of the calculation in question are not known at the time of the advertising, at the time the
information is provided or are not evident from clauses in the agreement or from the means of payment
used to access the credit granted.

The assumption based on the absence of any credit limits, as shown in the first indent of Article 1(a)(7) of
Directive 87/102/EEC has been abandoned. This proposal for a directive provides for a total amount of
credit always remaining and being mentioned. However, an assumption has been included in respect of
credit drawdowns. Where a consumer may draw down credit at any time and in any amount — but within
the limits imposed by the credit agreement — the creditor would be unable, when calculating the APR, to
include such aspects in advance. He must therefore presume that the whole amount of credit has been
drawn down immediately so that a credit agreement of this type can be compared to a traditional loan.

Paragraph 6 regulates the special case of leasing. Credit agreements of this type generally have provision
for parameters on which the residual value of the goods financed can be determined, this residual value
being payable when the consumer opts to purchase the goods. In this case, either the credit agreement has
an arrangement whereby this amount can be calculated in advance down to the last euro-cent, and these
figures are used to calculate the annual percentage rate of charge, or else the contract includes parameters
that do not allow an ex-post calculation and, accordingly, the assumption of the linear amortisation of the
goods applies.

Lastly, Annex III shows a formula and some examples for working out the impact of compulsory,
front-end saving on the annual percentage rate of charge.

Article 13 (total lending rate)

The total lending rate is a rate showing what is payable to the creditor for his ‘credit service’ and it
excludes all charges payable to third parties. It is calculated in the same way as the APR and its one base
reflects only the costs payable to the creditor. These costs include the interest payable, administration and
management charges, credit insurance premiums, and in general terms the insurance premiums payable by
the consumer upon conclusion of a credit agreement provided that it is the creditor who stipulates the
insurance requirement and chooses the insurer. In other words the premium is not a component of the
base if the insurance — like all other associated services — is optional. All charges relating to sureties,
notaries’ services, taxes and registration fees and the like are similarly not taken into account for the
purpose of establishing the total lending rate.

Article 14 (borrowing rate)

Article 2(k) has defined the concept of borrowing rate as an interest rate that excludes all other costs. This
proposal for a directive essentially lays down rules governing how the borrowing rate may vary. The
periods during which the borrowing rate may vary must be indicated in the credit agreement. Indices or
reference rates may be chosen freely on condition that they are governed by objective rules that are clear
and cannot be influenced by what the parties prefer.

31.12.2002

EN

Official Journal of the European Communities

C 331 E/215

It is only this rate that may be varied. No other charge may be varied and it is unthinkable that ‘costs’ may
vary. It would be very difficult to allow the costs associated with the conclusion or the management of a
credit agreement (commissions, stamp duty, postal charges etc.) to vary, either downwards or upwards. It
is, in fact, only the cost of money that can vary over time. It is for this reason that the charge rate cannot
be allowed to vary. The price of goods or of a service is fixed in advance and payments are staggered over
time. The possible cost of refinancing this transaction by the creditor is already included in the rate of
charge and is therefore, by its very nature, not subject to variations of any kind.

The consumer must be advised of any change to this rate, for example by providing a statement of
account. A reference to a new annual percentage rate of charge will allow the consumer to know
whether his credit, following application of the rules governing variations in rates, has not become too
expensive compared with the market rate.

Article 15 (unfair terms)

The list of unfair terms contained in this article should be seen as a ‘black list’ of specific clauses that
should not appear in any credit or surety agreement. It should not be understood as a special list to replace
the (grey) list or the general clause in Directive 93/13/EEC on unfair terms. It is for this reason that there is
a mention to the effect that the article applies ‘without prejudice to the application of Directive 93/13/EEC
to the agreement as a whole’.

The ban referred to in point (a) covers practices that require or reserve some part of the sums borrowed,
for example, to constitute a surety, deposit or bond, or to purchase shares in a bonding company or a
financing company, as these are practices that would double the profits of the creditor or, where
applicable, the credit intermediary.

The provision of point (b) is to regulate the joint offer of a credit agreement and another agreement that
most frequently relates to the provision of some ancillary service — insurance, maintenance, current
account, etc. without
the consumer being given the choice of declining the service or selecting a
different provider. Where there is no freedom of choice the related charges must form part of the total
cost of the credit.

The provision of point (c) requires any change to the APR to apply only to variations in the borrowing
rate and to no other charges. It is difficult to imagine costs relating to stamps, customer records, account
statements and management etc. being subject to rules on variability. For any unilateral raising of costs a
new credit agreement must be drawn up.

The provision of point (d) relates to a ban on any condition permitting disproportionate variability
vis-à-vis the consumer where such a condition uses, for example, different calculations depending on
whether the rate rises or falls, uses rates or indices for variability that are not quite neutral or even
depend on the creditor’s personal preferences etc.

The ban referred to in point (e) relates to a practice that takes the form of applying initially a call-in rate or
a discounted rate that are then followed by a cost base that is higher and subject to the rules on variability.
The rate advertised must be the cost base and any discount must be advised separately.

The provision of point (f) relates to agreements known as ‘balloon agreements’. It has been noted that this
type of ‘timetable’, the last payment under which — the residual value — is fairly high, is made available
by captive companies, the purpose of whose trade is to retain consumers for their particular make of car.
These agreements frequently involve refinancing or a return of the object financed as a deposit for a
second purchase of a car that includes a new credit agreement. Such business practice appears questionable
in that it is likely to prevent consumers changing the make of car owing to the final financial burden
involved.

C 331 E/216

EN

Official Journal of the European Communities

31.12.2002

Article 16 (early repayment)

Article 8 of Directive 87/102/EEC grants the consumer the right ‘to discharge his obligations under a
credit agreement before the time fixed by the agreement’. This right was amended and the article then read
as follows: ‘in this event, in accordance with the rules laid down by the Member States, the consumer shall
be entitled to an equitable reduction in the total cost of the credit’. Accordingly, the creditor is also entitled
to require an early repayment indemnity — a fair one — to offset his charges and lost investment.

A number of Member States have specified, even banned, this indemnity (1). It is difficult nowadays, given
the scope for reinvesting capital on the international capital market, to justify any indemnity or financial
compensation. The proposal is therefore first and foremost to confirm the right to early repayment, either
in part or in full.

By seeking to strike a balance between the advantages for the consumer and the disadvantages for the
creditor — relating to the management of the early repayment and the reinvestment of the capital received
— the proposal is therefore to include provision for an early repayment indemnity for creditors only if it is
objective, fair and calculated on the basis of actuarial principles. In other words, the method used must be
objective and must pinpoint cases where an indemnity is not called for, for example when market rates are
on the rise, which would make the indemnity negative and in fact offer a profit to the consumer. The
principle of ‘actuarial fairness’ is fully respected so that the points of view of both parties can be given the
best possible consideration.

The proposal is nonetheless to exempt the consumer from the payment of an indemnity for any credit
agreement whose conditions do not justify an indemnity:

— point (a) is therefore aimed at excluding credits at variable borrowing rates where the cost of early
repayment is largely passed on through the rate. However, the variable rate must apply to periods of
less than one year.

— point (b) excludes credits covered by insurance. None of the parties concerned is interested in main-
taining the credit — quite the contrary, for the sums paid under the terms of an insurance agreement
should allow the contractual relationship to be terminated.

— point (c) concerns credits without capital amortisation, such as advances on current accounts, and in
general any form of credit where the interest is calculated ex post to reflect the duration of the
drawdowns that occurred. The absence of any obligation to repay ‘in instalments’ or by periods
means, moreover, that there is no ‘early’ repayment. Credit agreements with provision for constitution
of capital, to which Article 20 refers, are not covered by point (c) because they have special procedural
methods for repayment at the end of periods and special conditions apply to the calculation of interest.

Article 17 (assignment of rights)

This article corresponds to Article 9 of Directive 87/102/EEC. The wording was changed only to incor-
porate new definitions and enhanced protection for the guarantor. An assignee is understood as any
person to whom the creditor's rights have been assigned, in other words a credit insurer, debt collection
agency, a rediscounting company or securitisation company etc. without reference having been made to
the legal procedure followed — assignment of credit, subrogation, delegation etc.

Article 18 (ban on the use of bills of exchange and other securities)

This article replaces Article 10 of Directive 87/102/EEC and completely abandons the use of bills of
exchange, promissory notes or cheques as a means of payment and/or form of personal surety.

(1) Similar or comparable legislation in the MS — non-exhaustive list: (1) with restrictions regarding the calculation

and/or the amount of the indemnity: IRL, NL, B, L, UK, (2) with ban: F

31.12.2002

EN

Official Journal of the European Communities

C 331 E/217

Article 19 (joint and several liability)

This article replaces Article 11 of Directive 87/102/EEC. Article 11 was based on the concept of joint and
several liability under common law, i.e. the responsibility of a number of people who, in law, are held
jointly and severally responsible for the discharge of an obligation. The wording ultimately used for
Directive 87/102/EEC, termed ‘subsidiary responsibility’, is a compromise with provision for the ‘consumer’
under certain circumstances being able to claim payment from the creditor if his complaint against the
vendor is justified and the latter refuses to pay. A number of Member States simply transposed Article 11
and created legislation that was ineffective. Other Member States went beyond the requirements of the
provision and deleted the concept of ‘exclusive link’ in relations between the creditor and the supplier or
provider (1).

The consumer needs to be given a right to act directly against the creditor when the creditor enjoys trade
benefits by working with specific suppliers and is able to seek remedy against them. Whenever the creditor
has close trade links with the supplier of the goods or the provider of the service the damage, in the event
that the consumer receives only faulty goods or services, or only some of the goods or services he ordered
or even receives none at all, should not be borne by the consumer but by the creditor or the supplier. The
consumer should have the option of going to court against one or the other or both in order to recover
the amount of his damage.

The proposal is therefore to adopt comprehensively the joint and several liability solution when the credit
supplier and the supplier of the goods or services are joint market operators. A case in question would
therefore be where the supplier has acted, even in an ancillary capacity, as a credit intermediary. An
existing agreement and effective checks by the creditor can be taken for granted in such cases and the
consumer should not be required to provide proof. This possibility covers not only the credit that has been
assigned in the strict sense but also any other form of credit availability or debit account that the supplier
proposes to the consumer on the occasion of the first purchase. It will be remembered in this respect that
this proposal for a directive contains a provision requiring the identity of the intermediary to be shown in
the credit agreement.

Article 20 (credit agreement providing constitution of capital)

For some years now the range of credit available has been growing to include new mortgage-linked credit
tied to either life assurance or to investment funds, the latter being generally known,
in the UK, as
endowment mortgages. Up until quite recently only traditional life assurance was used for the constitution
of credit. However, the new method, which uses a fund, is not without its risks for consumers. As in the
case of variable-capital investment companies or shareholdings, the sums constituted are dependent on
how the financial markets behave. It is possible, therefore, that when the main credit agreement comes to
term there is not enough capital to repay the credit, something that is not permissible in connection with a
product that is offered to the general public. Moreover, a similar situation has arisen on the UK market
with the result that consumers have encountered difficulties with repayments. It is therefore appropriate
that where there is no constitution of capital the creditor should assume one way or another responsibility
for its repayment, possibly using an additional insurance for this purpose. Paragraphs 1 and 2 are intended
to regulate such situations.

Paragraph 3 sets out special rules governing the calculation of the APR and the total lending rate that
include all payments to be made by the consumer both in respect of the main credit agreement and the
additional contract covering the reconstitution of capital.

(1) Similar or comparable legislation in the MS — non-exhaustive list: in the UK there is a system of ‘pure’ joint and
several liability without any exclusive link but which has now a lower and an upper limit. Other MS such as F and D
have developed ‘independent’ systems. The B, IRL, F and L have not kept a lower limit. NL has a lower limit.

C 331 E/218

EN

Official Journal of the European Communities

31.12.2002

Article 21 (credit agreement in the form of an advance on a current account or a debit account)

This article proposes the establishment of a standard method for providing information during the term of
the credit agreement so that the consumer is able to check the accuracy of the credit drawdowns that have
occurred, the borrowing rate applied, the costs to be paid etc., in particular in connection with credit
agreements linked to the operation of an account for which the borrowing rates are calculated ex post.

Article 22 (open-end credit agreement)

This article proposes that the consumer — and the creditor — should be entitled to terminate an open-end
credit agreement by giving three months’ notice. It is felt that a period of three months is the minimum
period for the consumer, who must be able to repay the total amount of credit he drew down. The
consumer retains the right to seek damages and interest if such termination by the creditor is to the
prejudice of the consumer.

Article 23 (performance of a surety agreement)

The first paragraph prohibits surety agreements that relate to open-end credit agreements. A guarantor
frequently only has a brief look at a consumer's solvency. Requiring a guarantor to provide a ‘lifelong’
surety must be considered excessive from the point of view of his own interests and may risk leading him
into debt.

The second and third paragraphs place restrictions on the action that can be taken against the guarantor.
The provisions of this directive place the emphasis on risk assessment relating to the consumer whereas
the guarantor's solvency and risk assessment in his case are of no more than secondary importance.

The proposal is therefore that the creditor may not approach the guarantor until a period of ‘insolvency’
has passed. The creditor must alert the guarantor — in good time — if the consumer is defaulting on
payments so that the guarantor can, if necessary, take steps to ensure that the consumer’s indebtedness
does not deteriorate further.

Lastly, the proposal is that the amount guaranteed by the surety may relate only to the outstanding balance
of the total amount of credit owed by the consumer and to any arrears or possible charges with the
exclusion of any form of penalty or non-performance indemnities payable by the consumer. These
in principle are the consumer’s responsibility, may be limited to this amount on
indemnities,
condition that
the
guarantor were required to pay additional penalties owing to the consumer's inability to discharge his
obligations. If, on the other hand, the guarantor were late in meeting his own obligations the creditor
could seek arrears and additional penalties in line with the amount that was guaranteed but not paid.

the guarantor immediately meets his obligations.

It would indeed be unfair if

that

Article 24 (default notice and enforceability)

Paragraph 1(a) of this article should be seen as the principal element linking all the articles in this chapter
covering the non-performance of credit agreements. It establishes a general principle of proportionality in
respect of the recovery of debts arising out of a credit agreement or surety agreement.

is to prevent

the consumer or the guarantor being required to repay
The aim of Paragraph 1(b)
immediately the total amount of the credit without previously having been invited to make good any
delay or to submit a proposal for reaching an amicable agreement on the rescheduling of the debt. The
Member States must encourage the parties concerned to seek out-of-court agreements or settlements. Two
exceptions to this principle are envisaged: manifest fraud and the particular case of the disposal of the
property financed, which must be likened to fraud if the consumer has been properly informed in good
time concerning the rights to property and privilege enjoyed by the creditor. The fact that the consumer
has moved away without leaving an address, even gone abroad, is in itself not enough reason for with-
holding the default notice. Examples would be hospitalisation or admission to an institution for a long
stay, clerical errors by the local authorities, problems with postal deliveries etc.

31.12.2002

EN

Official Journal of the European Communities

C 331 E/219

Paragraph 1(c) covers the suspending of the consumer's rights by the creditor in respect of future credit
drawdown. Similar measures may prove indispensable for the creditor in order to rule out fraud or even
the manifest indebtedness of the consumer, who might have concealed other credit or who might be
facing a court appearance for bankruptcy. In any event the creditor must alert the consumer of his
the
decision, setting out
consumer can, if necessary, contest it before the appropriate courts.

the reasons that prompted him to take the measure in question so that

Paragraph 1(d) regulates the provision of statements of account

Article 25 (overrunning of the total amount of credit and tacit overdraft)

The overrunning to which this directive refers implies that a credit agreement already exists. Overrunning
or an overdraft where there is no initial agreement runs counter to the general principles of caution and
information referred to in this directive.
to the requirements of Article 6 of Directive
87/102/EEC, the charges and rates applicable must be shown in the credit agreement.

In contrast

The first paragraph deals with the question of authorised overrunning. Tacit overrunning is considered to
be the same thing. The conditions are identical to those shown in the credit agreement in relation to the
borrowing rate and attendant charges except as regards the total amount of credit that is temporarily
overrun.

Paragraph 2 covers unauthorised overrunning. In line with the requirements of Article 10, the additional
charges must be shown in the agreement in the form of a statement of cost factors that are not included in
the calculation of the annual percentage rate of charge but that are payable by the consumer under certain
circumstances.

In both these cases the consumer must be alerted when the account is overrun and advised of the
conditions that apply. The situation must be rectified within three months either on the basis of a new
credit agreement indicating a higher total amount of credit, by returning to the ‘normal’ situation or by
otherwise terminating the contract or temporarily suspending drawdown.

Article 26 (repossession of goods)

Article 7 of Directive 87/102/EEC makes the recovery of goods a matter for an optional, but not
compulsory, court decision. The involvement of a court is necessary to check whether it is appropriate
to repossess goods that have been financed when the consumer has shown willingness to repay. A similar
check was proposed in the report on the operation of Directive 87/102/EEC (1). Even if the situation may
differ depending on the legal interpretation used (‘hire-purchase’, loan with subrogation in the rights of the
vendor who has expressed a reservation of title, leasing etc.) and the resultant civil and judicial procedures,
it is nevertheless proposed that Article 7 should be extended to include provisions guaranteeing the
involvement of a third party (2) for all credit agreements when the market value of the goods and the
financial interest of the creditor have clearly become less important than the interests of the consumer and
the latter has not consented to the repossession of the goods financed.

Article 27 (recovery)

This article refers to any person responsible for enforcing a credit agreement, in other words creditors,
credit insurers, recovery agencies etc. but excepts any persons who are responsible for the recovery of
money as part of a judicial procedure or for initiating repossession procedures, namely bailiffs. The
intention is not
to
prohibit certain practices in connection with the non-performance of credit agreements.

the ‘collection agencies’ or ‘debt counsellors’ but

to regulate the profession of

(1) Report on the operation of Directive 87/102/EEC for the approximation of the laws, regulations and administrative
provisions of the Member States concerning consumer credit — COM(95) 117 final of 11 May 1995 paragraphs
184-188. Summary report of reactions and comments COM(97) 465 final of 24 September 1997, No II.5.

(2) Similar or comparable legislation in the MS — non-exhaustive list: B, IRL, NL, L, UK.

C 331 E/220

EN

Official Journal of the European Communities

31.12.2002

The first paragraph confirms a principle that is already established by Article 10: the charges relating to
non-performance must be specified in the credit agreement or surety agreement and the persons
responsible for collection may not demand more than that which was fixed in the agreement.

Paragraph 2 lists illegal practices.

— the use of envelopes showing words or logos etc. that give the impression that the letter concerned is

from an official body, i.e. a judicial authority or a debt counsellor;

— letters threatening the consumer or the guarantor with repossession or prosecution in circumstances

where such action is not an option;

— recoveries that disregard the procedures for recovery of goods such as referred to in Article 26 or that

entail extra charges that were not detailed in the credit agreement;

— any action that can be likened to a violation of a consumer's or guarantor's privacy, for example
harassment in cases where the debt is contested or no longer exists, as well as indirect harassment by
contacting a consumer's or guarantor's neighbours, relatives or employers etc. This type of ‘doorstep’
activity, to which point (f) refers, must involve questions relating to personal data, such the consumer’s
‘solvency’, that are similar in type to the data to which Article 7 of this directive applies. In principle,
information in the public domain relating to changes of address is not considered here.

Article 28 (registration of creditors and credit intermediaries)

This article replaces and extends Article 12 of Directive 87/102/EEC. The proposal
is to make it
compulsory to take all the steps referred to in Article 12(1) (1). The introduction of more stringent
checks on creditors and credit intermediaries implies that these persons are registered from the outset,
that checks are carried out in the first place, that the registration can be suspended or withdrawn (where
necessary) and that any complaints are made known. Creditors and credit intermediaries are required,
in
pursuant to this article, to be registered by an official
particular monitoring their compliance with the provisions of this directive that are applicable to them.

institute or body that will supervise them,

There is another serious problem in connection with the information that is to be provided for consumers
by the ‘vendors’. These people frequently do not have the basic knowledge that is required to sell the
financial products that they distribute while supervision and statutory requirements in the Member States
relating to the quality of the information to be provided by these people and on their suitability to
distribute credit are frequently lacking. The solution proposed is to consider them as credit intermediaries
and at the same time to make creditors aware of their responsibilities when they resort to vendors as
distribution channels for their credit agreements, in particular as regards the provision of information in
advance and the duty to offer advice as referred to in Article 6 of this directive and with which credit
intermediaries are required to comply. The same status is envisaged for freelance ‘delegated agents’. It is
still possible for a vendor to work without being under the direct supervision of a creditor, but in this case
he must be licensed.

Exceptions are envisaged — as in Directive 87/102/EEC — in relation to creditors and credit inter-
mediaries who are to be considered as credit establishments within the meaning of Article 1(1) of
Directive 2000/12/EC of the European Parliament and of the Council of 20 March 2000 relating to the
taking up and pursuit of the business of credit institutions.

Article 29 (obligations of credit intermediaries)

This article contains provisions for special measures in relation to credit intermediaries.

The provision in point (a) establishes the definition of a credit intermediary. Accurate information for
consumers must be ensured in relation to the quality and extent of the credit intermediary's powers and on
any possible exclusive business connection he has with the creditor so that the consumer does not confuse
the intermediary with the creditor.

(1) Similar or comparable legislation in the MS — non-exhaustive list: IRL, UK, and B have merged the three options.
NL has provision for a licensing and monitoring system in respect of creditors and this includes a description of their
distribution channels plus a separate law on financial intermediaries.

31.12.2002

EN

Official Journal of the European Communities

C 331 E/221

is aimed at preventing situations where the intermediary encourages the
The provision in point (b)
consumer to contract credit beyond his ability to repay or to opt for a grouping of debts that would
be prejudicial to the consumer, in particular by submitting simultaneously two or three credit applications
to secure a total amount of credit from several creditors, where each application relates to a small amount
which, in itself, may well be acceptable to the creditors individually. However, no creditor would accept
funding the total amount of credit being sought. The proposal in point (b) is therefore that intermediaries
are to be obliged to inform all creditors that they have previously contacted in connection with an offer or
a credit agreement about the total amount of credit being sought.

The provisions in point (c) relate to the regulation of an intermediary's remuneration.
It should be
remembered that a credit intermediary's commission must be included in the APR. A credit intermediary
should not be authorised to contact consumers directly in order to request payment in connection with a
credit application or the provision of information unless three conditions are all met:

— the creditor must be informed by a reference to the amount of the fee shown in the credit agreement;

— the credit intermediary shall not be entitled to receive commission from the consumer if he is paid by

the creditor;

— the credit agreement must be concluded.

Article 30 (maximum harmonisation and imperative nature of the directive’s provisions)

Paragraph 1 confirms the principle of total harmonisation. Member States shall not be entitled to have in
place other provisions in relation to the areas covered by this directive unless otherwise stipulated. A
similar exception is possible in relation to Article 33 in respect of the burden of proof and in relation to
Article 8(4) in connection with the setting-up of a database for positive data. National-level provisions
covering maximum or exorbitant APRs or any other type of setting or evaluation of maximum or
exorbitant rates may continue to apply. This directive does regulate this area.

Paragraph 2 replaces Article 14(1) of Directive 87/102/EEC and includes the concept of ‘guarantor’.

Paragraph 3 retains Article 14(2) and adds another example. The original example spread the total amount
of credit over a number of contracts, the lower limit of which allowed an exemption whereas in this
current proposal for a directive any reference to lower limits in relation to the scope of the directive has
been removed. On the other hand, it must be ensured that the exemptions referred to in Article 3, namely
for housing credit and lease agreements, cannot be circumvented so that the transactions covered by this
directive can be included in such contracts. In other words, if a consumer requests a credit drawdown
under the terms of his housing credit or if, under the terms of his lease contract, he has a tacit option to
purchase and the drawdown in question is to allow him to finance the purchase of a car, the directive will
apply. Member States are requested to ensure that no such distortion occurs.

Paragraphs 4 and 5 make it clear that the provisions of the directive are imperative. Paragraph 4 lays down
that the rights granted to consumers and provided by the directive may under no circumstances be
surrendered by consumers.

Paragraph 5 is intended to ensure that consumers’ enjoyment of the rights conferred by this directive
cannot be denied to them on the grounds that the legislation applicable to the credit agreement or the
it is important that the
surety agreement is that of a third country. However, for this rule to apply,
agreement should have a close link with the jurisdiction of one or more Member States. Similar, identically
worded provisions are contained in Directives 93/13/EC relating to unfair terms and 97/7/EC on distance
contracts as well as in the Directive of the European Parliament and of the Council of [. . .] on the distance
marketing of consumer
financial services modifying Council Directives 90/619/EEC, 97/7/EC and
98/27/EC.

C 331 E/222

EN

Official Journal of the European Communities

31.12.2002

Article 31 (penalties)

The new Article 31 of this proposal for a directive provides that the Member States may impose appro-
priate penalties on the creditors, etc. concerned who fail to comply with the provisions of national
legislation implemented pursuant to this directive. Possibilities include a loss of interest and/or penalties
as well as the withdrawal of their licence.

Article 32 (out-of-court redress)

This article is aimed at easing the out-of-court settlement of cross-border disputes by inviting Member
States to encourage the bodies responsible for the out-of-court settlement of disputes to cooperate. A
cooperation arrangement that could be envisaged is for consumers to contact the out-of-court settlement
body in their country of residence which, in turn, would contact its counterpart in the supplier’s country.
In this way the consumer would not have to pursue the dispute in another Member State. Article 32 is
worded in a similar way to the provisions of other directives, such as Article 14 of the Directive of the
European Parliament and of the Council of [. . .] on the distance marketing of consumer financial services
modifying Council Directives 90/619/EEC, 97/7/EC and 98/27/EC and which encourages out-of-court
settlement in the interests of all concerned.

Article 33 (burden of proof)

Article 33, which is new, is worded in a similar way to the provisions of other directives, such as Article
15 of the Directive of the European Parliament and of the Council of [. . .] on the distance marketing of
consumer financial services modifying Council Directives 90/916/EEC, 97/7/EC and 98/27/EC. The points
that have been inserted are necessary to clarify, inter alia, the concept of ‘credit intermediary’. It has been
presumed that the latter works for payment and Member States are free to decide that the burden of proof
does not lie with the consumer.

Articles 34 (existing agreements)

This article establishes a transitional arrangement aimed at ensuring that this directive does not apply to
existing agreements, specifically long-term credit agreements and open-end credit agreements. Although
compulsory references cannot be imposed ex post on a credit agreement, on the rules governing respon-
sibility or in relation to the pre-contractual information requirement, it nevertheless remains that a major
part of the provisions can and must be applied to existing credit agreements, in particular as regards the
information to be given to consumers and guarantors during the performance or in the event of the
non-performance of a credit agreement or surety agreement.

Article 36 (repeal)

Article 36 contains formal provisions repealing Directive 87/102/EEC as amended by Directives 90/88/EEC
and 98/7/EEC since this directive replaces it.

Articles 35, 37 and 38 (transposition — entry into force — addressees)

These articles contain standard provisions and formulae and require no special comment.

31.12.2002

EN

Official Journal of the European Communities

C 331 E/223

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE
EUROPEAN UNION,

Having regard to the Treaty establishing the European
Community, and in particular Article 95 thereof,

Having regard to the proposal from the Commission,

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

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

Whereas:

(1) In 1995 the Commission presented a report (1) on the
operation of Council Directive 87/102/EEC of 22
December 1986 on the approximation of the laws, regu-
lations and administrative provisions of
the Member
States concerning consumer credit (2), following which it
the interested
undertook a very broad consultation of
parties.
In 1997 it presented a summary report of
reactions to the 1995 report (3). A second report was
produced in 1996 (4) on the operation of Council
Directive 90/88/EEC of 22 February 1990 amending
Directive 87/102/EEC on the approximation of the laws,
regulations and administrative provisions of the Member
States concerning consumer credit (5).

(2) These

and

texts

reveal

reports

consultations

in the field of credit

substantial
the various Member
differences between the laws of
for natural persons
in
States
in particular. Analysis of
general and consumer credit
the national
transposing Directive 87/102/EEC
shows that Member States have considered the degree
of protection offered by the directive to be inadequate.
They have therefore taken account, in their implementing
legislation, of other types of credit and new types of credit
agreement not covered by the directive. Consequently, it
is necessary to anticipate the reforms of national
legis-
lation envisaged by several Member States and to make
provision for a harmonised Community framework.

(3) The de facto and de jure situation resulting from these
national differences leads to distortions of competition
and restricts
among
consumers’ scope for obtaining credit in other Member
States. These distortions and restrictions in turn affect the

in the Community

creditors

(1) COM(95) 117 final.
(2) OJ L 42, 12.2.1987, p. 48. Directive most recently amended by

Directive 98/7/EC (OJ L 101, 1.4.1998, p. 17.

(3) COM(97) 465 final.
(4) COM(96) 79 final.
(5) OJ L 61, 10.3.1990, p. 14.

scale and nature of the demand for cross-border credit,
which may have consequences in terms of the demand for
goods and services. A further effect of the differences
between national
laws and practices is that consumers
do not enjoy the same protection in all Member States.

evolved

(4) In recent years the types of credit offered to and used by
consumers have
considerably. New credit
instruments have appeared, and their use continues to
develop. It is therefore necessary to adapt, amend and
complete the existing provisions and to extend their
scope.

(5) It is also necessary to promote the creation of a more
transparent and efficient credit market. It is important that
this market should offer a degree of consumer protection
such that the free movement of credit offers can take
place under optimum conditions for both those who
offer credit and those who require it. This necessitates a
process of maximum harmonisation,
all
consumers
in the Community of a high degree of
protection of their interests and an equivalent level of
information.

to assure

(6) In view of the growing diversity among the types of credit
and credit providers, any person who provides a creditor
with information allowing a consumer to be identified
and who assists in the conclusion of a credit agreement
for a remuneration must be regarded as a credit inter-
mediary, regardless of the form of such remuneration.
However,
lawyers and notaries should not, in principle,
be regarded as credit intermediaries where the consumer
contacts them for advice on the scope of a credit
agreement or if they help to draft or authenticate an
agreement, as long as their role is limited to providing
legal or financial advice and they do not direct
their
clients towards specific creditors.

(7) Credit agreements covering the granting of credit for the
purchase or transformation of immovable property should
be excluded from the scope of this directive. This type of
credit is of a very specific nature and is the subject of a
Commission Recommendation of 1 March 2001 on
pre-contractual
information to be given to consumers
by lenders offering home loans (6).

(8) In view of

the risks to their

the
situation of natural persons who stand as guarantors
level of
necessitates
information and protection comparable to that provided
for consumers.

specific provisions

ensuring a

interests,

financial

(6) OJ L 69, 10.3.2001, p. 25.

C 331 E/224

EN

Official Journal of the European Communities

31.12.2002

(9) Council Directive 84/450/EEC of 10 September 1984
concerning misleading advertising and comparative adver-
tising (1) is intended to provide protection with regard to
the mention of a figure, cost or rate in advertising or
It
advertising offers
requires such figure, cost or rate to be accompanied by
calculation details making it possible to assess the figure
in the context of all the consumer’s obligations under a
credit agreement.

relating to a credit agreement.

(10) In order

to ensure real consumer protection,

is
necessary to adopt an approach to unsolicited doorstep
selling of credit which is stricter than that laid down in
Council Directive 85/577/EEC of 20 December 1985 to
protect the consumer in respect of contracts negotiated
away from business premises (2).

it

through the central database must be prohibited. Finally,
to avoid any risk, the data must be destroyed immediately
after the conclusion of the credit agreement or the refusal
of the application for credit.

to the

the facts,

they must

(14) So that consumers can make their decisions in full
receive adequate
knowledge of
information, prior
credit
the
agreement, on the conditions and cost of the credit and
on their obligations. To ensure absolute transparency and
comparability of offers,
such information should in
particular include the annual percentage rate of charge
applicable to the credit,
illustrated by a representative
example, and the total lending rate.

conclusion of

(11) The provisions of

to Directive 95/46/EC of

this directive must apply without
the European
prejudice
Parliament and of the Council of 24 October 1995 on
the protection of individuals with regard to the processing
of personal data and on the free movement of such
data (3). However, a suitable framework for the collection
and processing of personal data needed in order to assess
the credit risk should be envisaged in certain cases.

(15) In view of the technical and legal complexity of credit
instruments, it is necessary to impose a general obligation
on the credit intermediary and creditor to provide advice,
so that the consumer can choose in full knowledge of the
facts among the types of credit offered. Similarly, it is the
responsibility of
in accordance with the
principle of ‘responsible lending’, to check whether the
consumer and, where applicable, the guarantor are in a
position to meet new commitments.

the creditor,

(12) In order to help reduce the credit risk for both the
creditor and the consumer, experience and practice
testify to the benefits of sufficient and reliable information
on cases of default. Member States must therefore ensure
that there is a public or private central database in their
territory, where appropriate in the form of a network of
databases. Consumers and guarantors in the Member State
who have defaulted should be registered in this database
or network. With a view to working effectively, creditors
must be obliged to consult this central database before
accepting any commitment on the part of the consumer
or guarantor. To prevent any distortion of competition
it must be ensured that persons and
among creditors,
central database of
access
businesses have
another Member State under the same conditions as
persons and businesses in that Member State, either
directly or through the central database of
their own
Member State.

to the

(16) The conditions laid down in a credit agreement may in
some cases be to the consumer’s disadvantage. Better
consumer protection must be ensured by imposing
certain conditions which apply to all
forms of credit.
The credit agreement must confirm and add to the
information provided before
the
agreement, where appropriate with the help of an amor-
tisation table and details of the charges for defaulting.

conclusion of

the

(17) In view of the specific nature of the terms used in credit
and surety agreements, clarification is needed as to which
terms are regarded as unfair, without prejudice to the
application to the agreement as a whole of Council
Directive 93/13/EEC of 5 April 1993 on unfair terms in
consumer contracts (4).

(13) In order to ensure the confidentiality of information and
protection of personal data, it is essential that the data
obtained may be used solely to assess
the risk of
non-performance by the consumer or guarantor. Any
other processing or use of personal data obtained

(1) OJ L 250, 19.9.1984, p. 17. Directive amended by Directive
97/55/EC of the European Parliament and of the Council (OJ L
290, 23.10.1997, p. 18).
(2) OJ L 372, 31.12.1985, p. 31.
(3) OJ L 281, 23.11.1995, p. 31.

(18) In order to approximate the procedures for exercising the
it is necessary to
in similar areas,
right of withdrawal
make provision for a right of withdrawal without
penalty and with no obligation to provide justification,
under conditions similar to those provided for by the
Directive of the European Parliament and of the Council
of [. . .] on the distance marketing of consumer financial
services and amending Council Directives 90/619/EEC,
97/7/EC and 98/27/EC.

(4) OJ L 95, 21.4.1993, p. 29.

31.12.2002

EN

Official Journal of the European Communities

C 331 E/225

(19) In order to promote the establishing and functioning of
the
internal market and ensure a high degree of
protection for consumers throughout the Community, it
is necessary to fine-tune the method of calculating the
annual percentage rate of charge and to determine the
components in the total cost of the credit to be used in
the calculation. The annual percentage rate of charge is in
fact an instrument of comparison allowing the consumer
to gauge and compare the impact on his budget, in time
and space, of commitments resulting from the conclusion
of a credit agreement. The total cost of the credit must
therefore include all costs which the consumer is required
to pay for the credit, regardless of whether those costs are
payable to the creditor, the credit intermediary or any
other party. Accordingly, even if the consumer voluntarily
takes out insurance on concluding the credit agreement,
the costs associated with such insurance must be included
in the total cost of the credit.

(20) It

is also necessary to provide the consumer with
information, in the form of a total lending rate, on the
sums payable to the creditor, excluding those payable to
third parties. This rate allows the consumer to compare
the costs specific to a creditor in respect of the various
products he offers and the various products available on
the market.

(21) The consumer should have the right to discharge his
obligations before the due date.
In the case of early
repayment either in part or in full, the creditor must be
entitled to claim a fair and objective indemnity only, and
provided that such repayment results in a corresponding
financial loss for the creditor.

credit intermediaries with a view to the conclusion of
credit agreements, for the inspection or monitoring of
creditors and intermediaries, and for enabling consumers
to lodge complaints concerning credit agreements or
conditions.

the

consumer

(26) In order to ensure permanent protection of the interests
of
surety
and guarantor,
agreements should not derogate, to the detriment of the
consumer
provisions
guarantor,
implementing or corresponding to this directive.

from the

credit or

or

(27) This directive respects fundamental rights and the prin-
ciples recognised by the Charter of Fundamental Rights of
the European Union. In particular, it aims to ensure full
compliance with the rules on protection of personal data,
the right to property, non-discrimination, protection of
family and professional
life, and consumer protection
pursuant to Articles 8, 17, 21, 33 and 38 of the Charter.

cannot be

(28) Since the objective of this directive, namely to establish
rules allowing the harmonisation of the laws, regulations
the Member States
and administrative provisions of
adequately
credit,
consumer
concerning
achieved by the Member States, and can therefore be
achieved more
the
Community can take action in accordance with the
principle of subsidiarity referred to in Article 5 of the
In accordance with the principle of propor-
Treaty.
tionality, as referred to in the said Article, this directive
does not go beyond what is necessary to achieve these
objectives.

effectively at Community level,

(22) If the supplier of goods or services acquired under a credit
agreement can be regarded as a credit intermediary, the
consumer must be able to enforce rights against
the
creditor which go further than his normal contractual
rights against a supplier of goods or services.

(29) Member States must lay down penalties for infringements
of the provisions of this directive and must ensure that
they are enforced. These penalties must be effective,
proportionate and constitute a deterrent.

(23) The transfer of

the creditor’s

rights under a credit
agreement must not have the effect of placing the
consumer or guarantor in a less favourable position. For
the same reasons a creditor who offers a credit agreement
providing constitution of capital must assume the risk if
the third party providing such constitution of capital
defaults on his obligations.

(30) It is therefore necessary to repeal and replace Directive

87/102/EEC,

HAVE ADOPTED THIS DIRECTIVE:

(24) It

is necessary to establish common provisions on
measures which apply in the event of non-performance
of credit agreements. In particular, certain debt collection
practices which are manifestly out of proportion must be
considered illegal.

CHAPTER 1

AIM, DEFINITIONS AND SCOPE

Article 1

Aim

(25) In order to endure market

transparency and stability,
Member States need to adopt appropriate measures for
the registration of persons offering credit or acting as

The aim of this directive is to harmonise the laws, regulations
and administrative procedures of the Member States concerning
agreements covering credit granted to consumers and surety
agreements entered into by consumers.

C 331 E/226

EN

Official Journal of the European Communities

31.12.2002

Article 2

Definitions

(l)

‘residual value’ means the purchase price of the financed
goods applicable at the time when the purchase option or
the property transfer option is exercised;

For the purpose of this directive:

(a)

(b)

(c)

(d)

‘consumer’ means a natural person who,
covered by this directive,
can be regarded as outside his trade or profession;

in transactions
is acting for purposes which

‘creditor’ means a natural or legal person who grants or
promises to grant credit
in the course of his trade,
business or profession;

‘credit agreement’ means an agreement whereby a creditor
grants or promises to grant to a consumer credit in the
form of a deferred payment, loan or other similar financial
accommodation. Agreements
the provision on a
continuing basis of services (private or public), where the
consumer has the right to pay for them for the duration of
their provision by means of instalments, are not deemed to
be credit agreements for the purposes of this directive;

for

offering

‘credit intermediary’ means a natural or legal person who,
for a fee, habitually acts as an intermediary by presenting
other
agreements,
or
preparatory work for such agreements, or concluding
such agreements; the fee may take the form of cash or
any other agreed form of financial consideration;

undertaking

credit

(e)

‘surety agreement’ means an ancillary agreement concluded
by a guarantor
and guaranteeing or promising to
guarantee the fulfilment of any form of credit granted to
natural or legal persons;

(f)

‘guarantor’ means
agreement;

a

consumer

concluding a

surety

(g)

‘total cost of credit to the consumer’ means all the costs,
including borrowing interest,
indemnities, commissions,
taxes and any other kind of charge which the consumer
has to pay for the credit;

(h)

‘annual percentage rate of charge’ means the total cost of
the credit
to the consumer expressed as an annual
percentage of the total amount of credit granted;

(i)

(j)

‘sums levied by the creditor’ means all the mandatory costs
associated with the credit agreement and paid to the
creditor by the consumer;

‘total lending rate’ means the sums levied by the creditor
expressed as an annual percentage of the total amount of
credit;

(m) ‘drawdown’ means an amount of credit made available to
the consumer in the form of a deferred payment, loan or
other similar financial accommodation;

(n)

‘total amount of credit’ means the ceiling or the sum of all
drawdowns that are likely to be agreed;

(o)

(p)

‘durable medium’ means any instrument which enables the
consumer to store information addressed personally to
him in a way which makes it accessible for
future
reference for a period of time adequate for the purposes
of the information and which allows the unchanged repro-
duction of the information stored;

legal person, other

‘third party providing constitution of capital’ means any
than the creditor or
natural or
consumer, who gives the consumer or, where applicable,
through an agreement
the
appended to the credit agreement,
to constitute the
capital to be repaid under such credit agreement.

an undertaking,

creditor

Article 3

Scope

This directive applies to credit agreements and surety

1.
agreements.

2.
This directive shall not apply to the following credit
agreements and, where applicable, any corresponding surety
agreements:

(a) credit agreements the aim of which is to grant credit for
the purchase or
transformation of private immovable
property that the consumer owns or is seeking to acquire
and which are secured either by a mortgage on immovable
property or by a surety commonly used in a Member State
for this purpose;

(b) hiring agreements which exclude the passing of the title to

the hirer or to persons entitled by him;

(c) credit agreements under the terms of which the consumer
is required to repay the credit in a single payment within a
period not exceeding three months, without the payment
of interest or any other charges;

(d) credit agreements which meet the following conditions:

(k)

‘borrowing rate’ means the interest rate expressed as a
periodic percentage applied for a given period to the
amount of credit drawn down;

(i) they are granted by the creditor as a secondary activity,
i.e. outside the sphere of his principal commercial or
professional activity,

31.12.2002

EN

Official Journal of the European Communities

C 331 E/227

(ii) they are granted at annual percentage rates of charge

lower than those prevailing on the market,

(iii) they are not offered to the public generally;

credit
information needed in respect of
complete
agreement under consideration. The consumer shall receive
this information on paper or on another durable medium
before the conclusion of the credit agreement.

the

(e) credit agreements concluded with investment firms within
the meaning of Article 1(2) of Council Directive
93/22/EEC (1) for the purposes of allowing an investor to
carry out a transaction relating to one or more of the
instruments listed in Section B of
the Annex to that
directive, where the firm granting the credit is involved
in such transaction.

Without prejudice to Article 5 of Directive . . . [on the distance
marketing of financial services to consumers and amending
Council Directives 90/619/EEC, 97/7/EC and 98/27/EC], the
included a concise and clear
information provided must
description of the product, its advantages, and any drawbacks.
In particular the information must refer to:

(a)

the sureties and insurance required;

CHAPTER II

(b) the duration of the credit agreement;

INFORMATION AND PRACTICES PRELIMINARY TO THE
FORMATION OF THE AGREEMENT

Article 4

Advertising

Without prejudice to Council Directive 84/450/EEC, any adver-
tising or any offer displayed at business premises that includes
information on credit agreements, in particular as regards the
borrowing rate, total lending rate and annual percentage rate of
shall be provided in a clear and comprehensible
charge,
in particular, to the principles of
manner, with due regard,
good faith in commercial
commercial
transactions. The
purpose of this information must be made clear.

Article 5

Ban on negotiation of credit and surety agreements
outside business premises

The negotiation of a credit or a surety agreement outside
business premises in the circumstances referred to in Article
1 of Council Directive 85/577/EEC shall be prohibited.

Article 6

Exchange of information in advance and duty to provide
advice

to the

application of Directive
1. Without prejudice
95/46/EC, and in particular Article 6 thereof,
the creditor
and, where applicable, the credit intermediary may request of
a consumer seeking a credit agreement, and any guarantor,
only such information as
relevant and not
excessive, with a view to assessing their financial situation
and their ability to repay.

is adequate,

The consumer and guarantor shall reply accurately and in full
to any such request for information.

The creditor and, where applicable,

2.
inter-
mediary shall provide the consumer with all the exact and

the credit

(1) OJ L 141, 11.6.1993, p. 27.

(c)

the amount, number and frequency of payments to be
made;

(d) the

recurrent

and non-recurrent

including
additional non-recurring costs which the consumer has to
pay on concluding a credit agreement, such as taxes,
administrative costs, legal fees and assessment costs with
regard to the sureties required;

charges,

(e)

the total amount of credit and the conditions governing the
drawdown of the credit;

(f) where applicable, the cash price of the financed goods or
services, the down payment due and the residual value;

(g) where applicable,

the borrowing rate,

the conditions
governing the application of this rate and any index or
reference rate applicable to the initial borrowing rate, as
well as the periods, conditions and procedures for varying
the borrowing rate;

(h) the annual percentage rate of charge and the total lending
rate, by means of a representative example mentioning all
the financial data and assumptions used for calculating the
said rates;

(i)

the period during which the right of withdrawal may be
exercised.

In the cases referred to in Article 3(3) of Directive . . . [on the
distance marketing of
financial services to consumers and
amending Council Directives 90/619/EEC, 97/7/EC and
98/27/EC], this information must include at least the items
referred to in points (c), (e), and (h) of this paragraph.

The creditor or, where applicable, the credit intermediary
3.
shall seek to establish, among the credit agreements they
usually offer or arrange, the most appropriate type and total
amount of credit taking into account the financial situation of
the consumer,
the advantages and disadvantages associated
with the product proposed, and the purpose of the credit.

C 331 E/228

EN

Official Journal of the European Communities

31.12.2002

Paragraphs 1, 2 and 3 do not apply to suppliers of goods
intermediaries in an ancillary

4.
or services acting as credit
capacity.

CHAPTER IV

FORMATION OF CREDIT AND SURETY AGREEMENTS

Article 9

Responsible lending

CHAPTER III

PROTECTION OF PRIVACY

Article 7

Collection and processing of data

Personal data obtained from consumers, guarantors or any
other person in connection with the
conclusion and
management of agreements covered by this directive, and in
particular by Article 6(1), may be processed only for the
purpose of assessing the financial situation of those persons
and their ability to repay.

Article 8

Central database

application of Directive
to the
1. Without prejudice
95/46/EC, Member States shall ensure the operation on their
territory of a central database for the purpose of registration of
consumers and guarantors who have defaulted. This database
may take the form of a network of databases.

Creditors must consult the database prior to any commitment
on the part of
to the
restrictions referred to in Article 9.

the consumer or guarantor, subject

The consumer and, where appropriate, the guarantor shall, if
they so request, be informed of the result of any consultation
immediately and without charge.

Access to the central database in another Member State
2.
shall be ensured under the same conditions as for firms and
individuals in that Member State, either directly or via the
central database of the home Member State.

3.
Personal data received under paragraph 1 may be
processed only for the purpose of assessing the financial
situation of the consumer and guarantor and their ability to
repay. The data shall be destroyed immediately after
the
conclusion of the credit or surety agreement or the refusal
by the creditor of the application for credit or the proposed
surety.

4.
The central database referred to in paragraph 1 may
include the registration of credit agreements and surety
agreements.

Where the creditor concludes a credit agreement or surety
agreement or increases the total amount of credit or the
assumed to have previously
amount guaranteed, he
the
assessed, by
consumer
can
reasonably be expected to discharge their obligations under
the agreement.

at his disposal, whether
guarantor
the

and, where

any means

appropriate,

is

Article 10

Information that must be included in credit and surety
agreements

Credit agreements and surety agreements shall be drawn

1.
up on paper or on another durable medium.

including the guarantor and the
All the contracting parties,
credit
credit
copy of
receive
shall
intermediary,
agreement. The guarantor shall receive a copy of the surety
agreement.

the

a

Agreements shall mention the existence or non-existence of
out-of-court complaint and redress procedures accessible to
consumers who are party to a contract and, if such procedures
exist, the formalities for gaining access to them.

2.

The credit agreement shall include:

(a)

the names and addresses of the contracting parties as well
as
intermediary
involved;

the name and address of

the credit

(b) the data referred to in Article 6(2), with the annual
percentage rate of charge and the lending rate calculated
at the time the credit agreement is concluded on the basis
of all the financial data and assumptions applicable to the
agreement;

(c) where capital amortisation is involved, a statement of
account
the
payments owing, and the periods and conditions relating
to the payment of these amounts;

form of an amortisation table,

in the

(d)

if charges and interest are to be paid without capital amor-
tisation, a statement showing the periods and conditions
the
for the payment of
associated recurrent and non-recurrent charges;

the borrowing interest and of

(e) a statement of the cost components that are not included
in the calculation of the annual percentage rate of charge
but are to be paid by the consumer under certain circum-
stances, namely the commitment fee, the charges relating
to unauthorised drawdowns in excess of the total amount
of credit and the charges for defaulting, plus a list setting
out the circumstances;

31.12.2002

EN

Official Journal of the European Communities

C 331 E/229

(f) where applicable, the goods and/or services being financed;

(g) entitlement to early repayment, as well as the procedure to
be applied by the consumer in order to exercise this right;

(h) the procedure to be followed to exercise the right of with-

drawal.

The table referred to in (c) shall contain a breakdown of each
repayment to show capital amortisation, the interest calculated
on the basis of the borrowing rate and, where applicable, the
additional costs.

in the case referred to in (c), a new drawdown is not
If,
possible without the consent of the creditor,
the creditor's
decision shall be communicated on paper or on another
durable medium. It shall be made available to the consumer
and contain the amended data to which this paragraph refers.

Where the exact amount of these components referred to in (e)
is known, it shall be shown. Otherwise, and as a minimum
requirement, these costs must be ascertainable in the credit
agreement on the basis of an indication of the percentage
linked to a reference rate, a calculation method or the most
realistic estimate possible. In such cases the creditor shall make
available to the consumer on paper or on another durable
medium a breakdown of these costs without delay or, at the
latest, when they are to be applied.

3.
The surety agreement shall state the maximum amount
guaranteed, as well as the charges for defaulting to be applied
in accordance with the procedure referred to in paragraph 2(e).

Article 11

Right of withdrawal

The consumer shall have a period of fourteen calendar
the credit agreement

1.
days to withdraw his acceptance of
without giving any reason.

This period shall begin on the day a copy of
agreement concluded is transmitted to the consumer.

the credit

2.
The consumer shall notify the creditor of his withdrawal
before expiry of the period referred to in paragraph 1 and in
accordance with national
legislation regarding proof. The
deadline shall be deemed to have been observed if this notifi-
cation, which must be on paper or on another durable medium
that is available and accessible to the creditor,
is dispatched
before the deadline expires.

Exercise of

3.
the right of withdrawal shall oblige the
consumer simultaneously to return to the creditor the sums
of money or goods that he has received by virtue of the
credit agreement,
in so far as provision thereof is governed
by the credit agreement. The consumer shall pay interest due

for the period during which credit was drawn, calculated on
the basis of the agreed annual percentage rate of charge. No
other indemnity may be claimed in connection with with-
drawal. Any down-payment effected by the consumer under
the credit agreement shall be repaid to the consumer without
delay.

4.
Paragraphs 1, 2 and 3 shall not apply to credit
agreements secured by a mortgage or similar surety, credit
agreements for housing or credit agreements cancelled under:

(a) Article 6 of Directive . . . [on the distance marketing of
financial services to consumers and amending Council
Directives 90/619/EC, 97/7/EC and 98/27/EC];

(b) Article 6(4) of Directive 97/7/EC of

the European

Parliament and of the Council (1);

(c) Article 7 of Directive 94/47/EC of the European Parliament

and of the Council (2).

CHAPTER V

ANNUAL PERCENTAGE RATE OF CHARGE AND BORROWING
RATE

Article 12

Annual percentage rate of charge

The annual percentage rate of charge, which equates, on
1.
the present value of all commitments
an annual basis,
(drawdowns,
future or existing,
agreed by the creditor and the borrower, shall be calculated
in accordance with the mathematical formula set out in Annex
I.

repayments and charges),

Examples of the method of calculation are given in Annex II,
by way of illustration.

2.
For the purpose of calculating the annual percentage rate
of charge, the total cost of the credit to the consumer shall be
determined, with the exception of charges payable by the
consumer for non-compliance with any of his commitments
laid down in the credit agreement and charges other than the
purchase price which, for purchases of goods or services, he is
obliged to pay whether the transaction is paid in cash or on
credit.

The costs of maintaining an account recording both payment
transactions and credit transactions, the costs of using a card or
another means of payment for both payment transactions and
drawdowns, and the costs relating to payment transactions in
general shall be regarded as credit costs unless they have been
clearly and separately shown in the credit agreement or in any
other agreement concluded with the consumer.

(1) OJ L 144, 4.6.1997, p. 19.
(2) OJ L 280, 29.10.1994, p. 83.

C 331 E/230

EN

Official Journal of the European Communities

31.12.2002

Costs relating to insurance premiums shall be included in the
total cost of the credit if the insurance is taken out when the
credit agreement is concluded.

The calculation of the annual percentage rate of charge
3.
shall be based on the assumption that the credit contract will
remain valid for the period agreed and the creditor and the
consumer will fulfil their obligations under the terms and by
the dates agreed

4.
In the case of credit agreements containing clauses
allowing variations in the borrowing rate contained in the
annual percentage rate of charge but unquantifiable at the
the annual percentage rate of charge
time of calculation,
shall be calculated on the assumption that
the borrowing
rate and other charges will remain fixed in relation to the
initial
level and will remain applicable until the end of the
credit agreement.

5. Where necessary,
the following assumptions may be
adopted in calculating the annual percentage rate of charge:

(a)

if a credit agreement gives the consumer
freedom of
drawdown, the total amount of credit shall deemed to be
drawn down immediately and in full;

(b) if there is no fixed timetable for repayment, and one cannot
be deduced from the terms of the agreement and the means
for repaying the credit granted, the duration of the credit
shall be deemed to be one year;

(c) unless otherwise specified, where the agreement provides
for more than one repayment date, the credit will be made
available and the repayments made on the earliest date
provided for in the agreement;

6. Where a credit agreement is drawn up in the form of a
hire agreement with an option to purchase and the agreement
provides for a number of dates on which the purchase option
may be exercised, the annual percentage rate of charge shall be
calculated for each of the these dates.

Where the residual value cannot be determined, the goods
hired shall be subject to linear amortisation that makes its
value equal to zero at the end of the normal hire period laid
down in the credit agreement.

7. Where a credit agreement provides for a prior or simul-
taneous constitution of savings and the borrowing rate is set in
relation to these savings, the annual percentage rate of charge
shall be calculated in accordance with the procedure set out in
Annex III.

Article 13

Total lending rate

1.
For the purpose of calculating the total lending rate, the
sums levied by the creditor shall be determined, with the

of

charges

for
payable
exception
non-compliance with any of his commitments laid down in
the credit agreement and charges other than the purchase
price which, for purchases of goods or services, he is obliged
to pay whether the transaction is paid in cash or on credit.

consumer

the

by

transactions,

transactions and credit

The costs of maintaining an account recording both
2.
payment
the costs of
using a card or another means of payment for both payment
transactions and drawdowns, and the costs relating to payment
transactions in general shall be regarded as sums levied by the
creditor unless they have been clearly and separately shown in
the credit agreement or in any other agreement concluded with
the consumer.

3.
The following shall be excluded from the sums levied by
the creditor for the purposes of calculating the total lending
rate:

(a) costs associated with ancillary services relating to the credit
agreement, which the consumer is free to obtain from the
creditor or any other provider;

(b) costs payable by the consumer on conclusion of the credit
agreement to persons other than the creditor, in particular
the notary, tax authorities, registrar of mortgages, and any
costs in general imposed by the authority responsible for
registration and sureties.

4.
The total lending rate shall be calculated in accordance
with the procedures and assumptions referred to in Article
12(3)-(7) and Annexes I and II.

Article 14

Borrowing rate

1.

The borrowing rate may be fixed or variable.

2. Where one or a number of fixed borrowing rates have
been established, they shall apply for the duration of the period
specified in the credit agreement.

3.
A variable borrowing rate may not vary until the end of
agreed periods provided for in the credit agreement and may
do so only in line with the agreed index or reference rate.

The consumer shall be informed of any change to the

4.
borrowing rate, on paper or on another durable medium.

This information must include the new annual percentage rate
of charge, the creditor’s new total
lending rate and, where
applicable, the new amortisation table. The calculation of the
new annual percentage rate of charge and the creditor’s new
total lending rate shall be based on Article 12(3).

31.12.2002

EN

Official Journal of the European Communities

C 331 E/231

CHAPTER VI

UNFAIR TERMS

Article 15

Unfair terms

No indemnity shall be claimed:

(a)

for credit agreements where the period used to fix the
borrowing rate is less than one year;

Without prejudice to the application of Directive 93/13/EEC to
the agreement as a whole, terms in a credit agreement or
surety agreement shall be regarded as unfair if their object or
effect is to:

(b) if repayment has been made under an insurance contract
repayment

intended to provide a conventional credit
guarantee;

(a)

impose on the consumer, as a condition for a drawdown, a
requirement to leave as surety, in full or in part, the sums
borrowed or granted, or to use them, in full or in part, to
constitute a deposit or purchase securities or other financial
instruments, unless the consumer obtains the same rate for
such deposit, purchase or surety as the agreed annual
percentage rate of charge;

(b) oblige the consumer, when concluding a credit agreement,
to enter into another contract with the creditor, credit
intermediary or a third party designated by them, unless
the costs thereof are included in the total cost of the credit;

(c) vary any contractual costs,
than the borrowing rate;

indemnities or charges other

(d) introduce rules on the variability of the borrowing rate that

discriminate against the consumer;

(e)

introduce a system involving a variable borrowing rate
which does not relate to the net initial borrowing rate
proposed when the credit agreement was concluded and
which would exclude all
forms of rebate, reduction or
other advantages;

(f) oblige the consumer to use the same creditor to refinance
the residual value and, in general, any final payment on a
credit agreement for financing the purchase of movable
property or a service.

CHAPTER VII

PERFORMANCE OF A CREDIT AGREEMENT

Article 16

Early repayment

1.
The consumer shall be entitled to discharge fully or
partially his obligations under a credit agreement before the
time fixed in the agreement.

Any indemnity claimed by the

2.
early
repayment shall be fair and objective and shall be calculated
on the basis of actuarial principles.

creditor

for

(c)

for credit agreements which provide for payment of
charges and interest without capital amortisation, with
the credit agreements referred to in
the exception of
Article 20.

Article 17

Assignment of rights

Where the creditor's rights under a credit agreement or surety
agreement are assigned to a third party, the consumer and,
the guarantor, shall be entitled to plead
where applicable,
against
that
agreement any defence which was available to him against
is
the original creditor,
permitted in the Member State concerned.

including set-off where the latter

the assignee of

the creditor's

rights under

Article 18

Ban on the use of bills of exchange and other securities

The creditor or assignee of the creditor's rights under a credit
agreement or surety agreement shall not require or invite the
consumer or guarantor
their
commitments under that agreement by means of a bill of
exchange or promissory note.

to guarantee payment of

Moreover, the consumer or guarantor shall not be required to
sign a cheque guaranteeing repayment, in full or in part, of the
amount due.

Article 19

Joint and several liability

in any way affect

1. Member States shall ensure that the existence of a credit
agreement shall not
the
consumer against the supplier of goods or services purchased
by means of such an agreement in cases where the goods or
services are not supplied or are otherwise not in conformity
with the contract for their supply.

the rights of

If the supplier of goods or services has acted as credit
2.
intermediary, the creditor and the supplier shall be jointly and
severally liable for indemnifying the consumer where the goods
or services the purchase of which has been financed by the
credit agreement are not supplied, or are supplied only in part,
or are not in conformity with the contract for their supply.

C 331 E/232

EN

Official Journal of the European Communities

31.12.2002

CHAPTER VIII

Article 22

SPECIFIC CREDIT AGREEMENTS

Open-end credit agreement

Article 20

Credit agreement providing constitution of capital

1.
If payments made by the consumer do not give rise to an
immediate corresponding amortisation of the total amount of
credit, but are used to constitute capital during periods and
under conditions laid down in the credit agreement, such
constitution of
shall be based on an ancillary
capital
agreement attached to the credit agreement.

2.
The ancillary agreement referred to in paragraph 1 shall
provide for an unconditional guarantee of repayment of the
total amount of credit drawn down. If the third party providing
constitution of capital fails to comply with his obligations, the
creditor shall assume the risk.

the

consumer under

Payments, premiums and recurrent or non-recurrent
3.
charges payable by
ancillary
agreement referred to in paragraph 1, together with interest
and charges under the credit agreement, shall constitute the
total cost of the credit. The annual percentage rate of charge
and the total lending rate shall be calculated on the basis of the
total commitment subscribed to by the consumer.

the

Article 21

Credit agreement in the form of an advance on a current
account or a debit account

Where a credit agreement covers credit in the form of an
advance on a
the
consumer shall be regularly informed of his debit situation
by means of a statement of account, on paper or on another
durable medium, containing the following information:

account or debit

account,

current

Either party may terminate an open-end credit agreement by
giving three months' notice drawn up on paper or on another
durable medium in accordance with the procedures laid down
in the credit agreement and in accordance with national legis-
lation regarding proof.

CHAPTER IX

PERFORMANCE OF A SURETY AGREEMENT

Article 23

Performance of a surety agreement

1.
A guarantor may conclude a surety agreement guaran-
teeing repayment under an open-end credit agreement for a
period of three years only. This surety may be extended only
with the specific agreement of the guarantor at the end of that
period.

2.
The creditor may take action against the guarantor only if
the consumer, having defaulted on repayment of the credit, has
failed to comply with a default notice within three months.

The amount guaranteed may only equal the outstanding
3.
balance of
the total amount of credit and any arrears in
accordance with the credit agreement, with the exclusion of
any other indemnities or penalties provided for by the credit
agreement.

(a)

the precise period to which the statement of account
relates;

CHAPTER X

(b) the amounts and dates of drawdowns;

(c) where applicable, the outstanding balance due from the

previous statement, and the date thereof;

(d) the date and amount of charges due;

(e)

the dates and amounts of payments made by the consumer;

(f)

the last agreed borrowing rate;

(g) the total amount of interest due;

NON-PERFORMANCE OF A CREDIT AGREEMENT

Article 24

Default notice and enforceability

1. Member States shall ensure that:

(a) creditors, their representatives and any other assignee of
the creditor's rights under a credit agreement or surety
take disproportionate measures to
agreement may not
recover
of
non-performance of such agreements;

them in

amounts

event

due

the

to

(h) where applicable, the minimum amount to be paid;

(i) where applicable, the new balance outstanding;

(j)

the new total amount outstanding, including any interest
on arrears or penalties.

(b) the creditor may demand immediate payment in the event
invoke a clause providing an express
of default or
resolutive condition only through a prior default notice
the
requesting
consumer or, where
guarantor
the
agreement within a reasonable period of time or to apply
for rescheduling of the debt;

the
applicable,
to comply with his obligations under

31.12.2002

EN

Official Journal of the European Communities

C 331 E/233

(c) the creditor may not suspend the consumer's drawdown
rights unless he justifies his decision and is required to
inform the consumer without delay;

specific consent at the moment the creditor proceeds for repos-
session and if he has already made payments corresponding to
a third of the total amount of credit, the goods financed may
not be repossessed unless by judicial proceedings.

(d) in the event of non-performance of their obligations or in
the event of early repayment,
the consumer and the
guarantor are entitled, on request and without delay, to
receive a detailed statement of account,
free of charge,
allowing them to verify the charges and interest claimed.

Member States shall further ensure that, where the creditor
repossess the goods, the account between the parties is made
up so as to ensure that repossession does not entail any unjus-
tified enrichment.

A default notice as referred to in paragraph 1(b) is not

2.
necessary:

(a)

in the event of manifest fraud, evidence of which shall be
provided by the creditor or the assignee of the creditor's
rights;

(b) where the consumer alienates the property financed before
the total amount of credit is repaid or uses the property in
a manner inconsistent with the conditions of the credit
agreement, and where the creditor or the assignee of the
creditor's rights has a preferential claim, right of possession
or reservation of title on the property financed, provided
that the consumer has been informed of the existence of
such preferential claim, right of possession or reservation of
title prior to the conclusion of the contract.

Article 25

Overrunning of

the total amount of credit and tacit

overdraft

1.
In the event of an authorised temporary overrunning of
the total amount of credit or a tacit overdraft, the creditor shall
inform the consumer without delay, in writing or on another
durable medium, of the amount involved and the borrowing
rate applicable. No penalties, charges or interest on arrears
shall be included.

The creditor shall

inform the consumer without delay
2.
that he has overrun the credit amount or is in an unauthorised
overdraft situation and shall inform him of the borrowing rate
and/or the charges or penalties applicable.

3.
Any overrunning or overdraft as referred to in this article
shall be rectified within three months, where necessary through
a new credit agreement providing for a higher total amount of
credit.

Article 27

Recovery

1.
Natural or legal persons who undertake, as their principal
or as a secondary activity, and not as part of any court
the recovery of debts arising from a credit
procedure,
agreement or surety agreement, or who intervene in this
respect, may not, in any form whatsoever, either directly or
indirectly, claim any fee or indemnity from the consumer or
guarantor for their intervention, unless such fees or indemnities
surety
are specifically agreed in the credit agreement or
agreement.

2.
In the context of the recovery of debts arising from a
credit agreement or surety agreement, the following shall be
prohibited:

(a) any document which, as a result of its appearance, wrongly
is from a judicial or debt

it

gives the impression that
mediation authority;

(b) written communications containing incorrect information

on the consequences of defaulting on payment;

(c) unauthorised repossession of

judicial
proceedings or the specific consent referred to in Article
26;

goods without

(d) any inscription on an envelope which makes it clear that
the correspondence concerns the recovery of a debt;

(e) collection of charges not provided for by the credit

agreement or surety agreement;

(f) any contact with the neighbours, relatives or employer of
the consumer or guarantor, especially any communication
the
of, or request
consumer or guarantor, without prejudice to actions
forming part of statutory seizure procedures as established
by Member States;

information on the solvency of

for,

Article 26

Repossession of goods

(g) physical or psychological harassment of a consumer or

guarantor;

In the case of credit agreements for the acquisition of goods,
Member States shall
lay down the conditions under which
goods may be repossessed. If the consumer has not given his

(h) recovery of a lapsed debt.

C 331 E/234

EN

Official Journal of the European Communities

31.12.2002

CHAPTER XI

REGISTRATION, STATUS AND CONTROL OF CREDITORS
AND CREDIT INTERMEDIARIES

(b) communicates to all creditors contacted the total amount
of other credit offers he has requested or received for the
same consumer or guarantor during the two months
preceding conclusion of the credit agreement;

Article 28

Registration of creditors and credit intermediaries

1. Member States shall ensure that creditors and credit inter-
mediaries apply for registration.

The obligation to register does not apply to credit
inter-
mediaries for whom a creditor or another credit intermediary
assumes responsibility under the terms of his own registration.
This assumption of responsibility must be made clear in a
notice on the premises of credit intermediaries not required
to register.

2. Member States shall:

(c) does not receive, directly or indirectly, any fee, in whatever
form, from a consumer who has requested his services,
unless all the following conditions are met:

(i) the amount of the fee is stated in the credit agreement,

(ii) the credit intermediary does not receive a fee from the

creditor,

(iii) the credit agreement for which he has acted is actually

concluded.

(a) ensure that

the activities of creditors and credit

inter-
mediaries are subject to inspection or monitoring by an
institution or official body;

(b) establish

appropriate

bodies
agreements,

complaints
and
concerning credit
credit and surety conditions, and to provide consumers
and guarantors with relevant
information or advice on
this subject.

to
surety agreements

receive

3. Member States may stipulate that registration as referred
to in the first subparagraph of paragraph 1 of this article shall
not be necessary where the creditor or credit
intermediary
institution’ within the meaning of
concerned is a ‘credit
the European
Article 1(1) of Directive 2000/12/EC of
the Council (1) and is authorised in
Parliament and of
accordance with the provisions of that directive.

this article and authorised under

intermediary is both registered
Where a creditor or credit
under the provisions of the first subparagraph of paragraph
1 of
the provisions of
Directive 2000/12/EC of the European Parliament and of the
Council,
subsequently
withdrawn, the competent authority which has registered the
intermediary shall be informed and shall
creditor or credit
decide whether
intermediary may
the creditor or credit
continue to grant or arrange credit or whether his registration
should be cancelled.

authorisation

latter

and

the

is

Article 29

Obligations of credit intermediaries

CHAPTER XII

FINAL PROVISIONS

Article 30

Total harmonisation and imperative nature of

the

directive's provisions

1. Member States may not introduce provisions other than
those laid down in this directive, except with regard to:

(a) registration of credit agreements and surety agreements in

accordance with Article 8(4);

(b) the provisions concerning the burden of proof referred to

in Article 33.

2. Member States shall ensure that credit agreements and
surety agreements do not derogate, to the detriment of the
consumer or guarantor, from the provisions of national
law
implementing or corresponding to this directive.

in implementation of

3. Member States shall further ensure that the provisions
they adopt
this directive cannot be
circumvented as a result of the way in which agreements are
formulated, in particular by integrating drawdowns or credit
agreements falling under the scope of this directive into credit
agreements the character or purpose of which would make it
possible to avoid its application.

Member States shall ensure that a credit intermediary:

Consumers and guarantors may not waive the rights

4.
conferred on them by this directive.

(a)

indicates in advertising and documentation intended for
clients the extent of his powers, in particular whether he
works exclusively with one or more creditors or as an
independent broker;

(1) OJ L 126, 26.5.2000, p. 1.

5. Member States shall take the measures needed to ensure
that the consumer and the guarantor do not lose the protection
granted by this directive by virtue of the choice of the law of a
non-member country as the law applicable to the agreement, if
the agreement has a close link with the territory of one or
more Member States.

31.12.2002

EN

Official Journal of the European Communities

C 331 E/235

Article 31

Penalties

in so far as an increase in the total amount of credit or the
amount guaranteed occurs
the national measures
implementing this directive enter into force.

after

take all necessary measures to ensure that

Member States shall lay down penalties for infringements of
national provisions adopted in application of this directive, and
shall
these are
enforced. These penalties must be effective, proportionate and
constitute a deterrent. They may provide for the loss of interest
and charges by the creditor and continuation of the right of
repayment in instalments of the total amount of credit by the
consumer, in particular where the creditor does not respect the
provisions on responsible
shall
communicate these provisions to the Commission no later
than [. . .] [2 years after the entry into force of this directive]
and any subsequent amendments concerning them without
delay.

lending. Member States

Article 32

Out-of-court redress

shall

ensure

and redress procedures

that adequate and effective
Member States
the out-of-court
complaints
settlement of consumer disputes concerning credit and surety
agreements are put
in place, using existing bodies where
appropriate.

for

Member States shall encourage bodies responsible for the
out-of-court settlement of consumer disputes to cooperate in
order to resolve cross-border disputes concerning credit and
surety agreements.

Article 33

Burden of proof

Member States may provide that the burden of proof in respect
information obligations
of compliance with the consumer
imposed on the creditor and credit intermediary,
in respect
of the consumer’s consent to the conclusion of the contract
and, where appropriate, its performance, and in respect of the
credit intermediary’s remunerated activities may lie with the
creditor or credit intermediary.

Any term in an agreement which provides that the burden of
proof in respect of compliance by the creditor and, where
applicable, the credit intermediary with all or part of the obli-
gations incumbent on them pursuant to this directive should
lie with the consumer and, where applicable, the guarantor,
shall be an unfair term within the meaning of Directive
93/13/EEC.

For

existing on the date

the national
agreements
2.
implementing measures enter
the amortisation
table referred to in Article 10 must be provided to the
consumer free of charge as soon as either of the following
conditions applies:

into force,

(a) cancellation of the credit agreement or early repayment;

(b) default on payment.

shall

States

ensure

3. Member
that open-end credit
agreements and surety agreements existing on the date the
national
implementing measures enter into force have to be
replaced by new agreements which comply with this directive
no later than [. . .] [two years after the end of the transposition
period].

Article 35

Transposition

Member States shall adopt and publish, no later than [. . .] [2
years after the entry into force of this directive] the laws,
regulations and administrative provisions necessary to comply
with this directive. They shall
immediately inform the
Commission thereof.

They shall apply these provisions from [. . .] [2 years after the
entry into force of this directive].

these provisions,

When Member States adopt
these shall
contain a reference to this directive or shall be accompanied
their official publication.
by such reference at
Member States shall determine how such reference is to be
made.

the time of

Article 36

Repeal

Directive 87/102/EEC is repealed with effect from [. . .] [the
end of the transposition period for this directive].

Article 37

Entry into force

Article 34

Existing agreements

This directive shall enter into force on the twentieth day
following its publication in the Official Journal of the European
Communities.

agreements

This directive does not apply to credit agreements and
1.
surety
the national
implementing measures enter into force, with the exception
of the provisions of Articles 1, 2, 3 and 22, 23(1) and (2),
24 to 27, and 30 to 35. Article 9 shall apply to such contracts

on the

existing

date

Article 38

Addressees

This directive is addressed to the Member States.

C 331 E/236

EN

Official Journal of the European Communities

31.12.2002

ANNEX I

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

The basic equation, which establishes the annual percentage rate of charge (APR), equates, on an annual basis, the total
present value of drawdowns on the one hand and the total present value of repayments and payments of charges on the
other hand, i.e.:

Xm

k¼1

Ck ð1 þ XÞ(cid:1)tk ¼

Xm0

l¼1

Dl ð1 þ XÞ(cid:1)sl

where:

— X

is the APR

— m is the number of the last drawdown,

— k

is the number of a drawdown, therefore 1 £ k £ m,

— Ck

— tk

is the amount of drawdown k,

is the interval, expressed in years and fractions of a year, between the date of the first drawdown and the date
of each subsequent drawdown, therefore t1 = 0,

— m'

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

— l

is the number of a repayment or payment of charges,

is the amount of a repayment or payment of charges,

is the interval, expressed in years and fractions of a year, between the date of the first drawdown and the date
of each repayment or payment of charges.

— Dl

— sl

Remarks:

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

equal intervals.

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

(c) Intervals between dates used in the calculations shall be expressed in years or in fractions of a year. A year is
presumed to have 365 days (or 366 days for leap years), 52 weeks or 12 equal months. An equal month is
presumed to have 30,41666 days (i.e. 365/12) regardless of whether or not it is a leap year.

(d) The result of the calculation shall be expressed with an accuracy of at least one decimal place. If the figure at the
following decimal place is greater than or equal to 5, the figure at that particular decimal place shall be increased by
one.

(e) The equation can be rewritten using a single sum and the concept of flows (Ak), which will be positive or negative,

in other words either paid or received during periods 1 to k, expressed in years, i.e.:

S ¼

Xn

k¼1

Ak ð1 þ XÞ(cid:1)tk

S being the present balance of flows. If the aim is to maintain the equivalence of flows, the value will be zero.

(f) Member States shall provide that the methods of resolution applicable give a result equal to that of the examples

presented in Annexes II and III.

31.12.2002

EN

Official Journal of the European Communities

C 331 E/237

EXAMPLES OF CALCULATION OF THE ANNUAL PERCENTAGE RATE OF CHARGE

ANNEX II

Preliminary remarks

Unless otherwise stated, all examples assume a single drawdown of credit equal to the total amount of the credit and
placed at the consumer's disposal as soon as the credit agreement is concluded. In this connection, it should be noted
that if the credit agreement gives the consumer freedom of drawdown, the total amount of credit is deemed to be drawn
down immediately and in full.

Some Member States,
in order to express the borrowing rate, have opted for an effective rate and the equivalent
conversion method, thus avoiding a situation in which the calculation of periodical interest is carried out in countless
ways using different pro rata temporis rules which have only a very vague relationship with the linear nature of time.
Other Member States permit a nominal periodic rate using a proportional conversion method. This directive seeks to
separate any further regulation of borrowing rates from the regulation of effective rates, simply stating the rate used.
The examples in this Annex refer to the method that has been used.

Example 1

Total amount of credit (capital) of EUR 6 000,00, repayable in four equal annual instalments of EUR 1 852,00.

The equation becomes:

or:

6 000 ¼ 1 852

1 (cid:1)

1
ð1 þ XÞ4

X

6 000 ¼ 1 852

1

ð1 þ XÞ1 þ 1 852

1

ð1 þ XÞ2 þ : : : þ 1 852

1
ð1 þ XÞ4

giving X = 9,00000 %, i.e. an APR of 9,0 %.

Example 2

Total amount of credit (capital) EUR 6 000,00, repayable in 48 equal monthly instalments of EUR 149,31.

The equation becomes:

6 000 ¼ 149,31

1 (cid:1)

h

1
ð1 þ XÞ1=12i48
ð1 þ XÞ1=12 (cid:1) 1

or:

6 000 ¼ 149,31

1

ð1 þ XÞ1=12 þ 149,31

1

ð1 þ XÞ2=12 þ : : : þ 149,31

1
ð1 þ XÞ48=12

giving X = 9,380593 %, i.e. an APR of 9,4 %.

Example 3

Total amount of credit (capital) of EUR 6 000,00, repayable in 48 equal monthly instalments of EUR 149,31. Adminis-
trative charges of EUR 60,00 are payable on conclusion of the contract.

C 331 E/238

EN

Official Journal of the European Communities

31.12.2002

The equation becomes:

or:

6 000 (cid:1) 60 ¼ 149,31

1 (cid:1)

h

1
ð1 þ XÞ1=12i48
ð1 þ XÞ1=12 (cid:1) 1

5 940 ¼ 149,31

1

ð1 þ XÞ1=12 þ 149,31

1

ð1 þ XÞ2=12 þ : : : þ 149,31

1
ð1 þ XÞ48=12

giving X = 9,954966 %, i.e. an APR of 10 %.

Example 4

Total amount of credit (capital) of EUR 6 000,00, repayable in 48 equal monthly instalments of EUR 149,31. Adminis-
trative
therefore
the
(EUR 149,31 + (EUR 60/48)) = EUR 150,56.

charges of EUR 60,00 are

repayments. The monthly

spread over

instalment

is

The equation becomes:

or:

6 000 ¼ 150,56

1 (cid:1)

h

1
ð1 þ XÞ1=12i48
ð1 þ XÞ1=12 (cid:1) 1

6 000 ¼ 150,56

1

ð1 þ XÞ1=12 þ 150,56

1

ð1 þ XÞ2=12 þ : : : þ 150,56

1
ð1 þ XÞ48=12

giving X = 9,856689 %, i.e. an APR of 9,9 %.

Example 5

Total amount of credit (capital) of EUR 6 000,00, repayable in 48 equal monthly instalments of EUR 149,31. Adminis-
trative charges are EUR 60,00, and insurance EUR 3,00 per month. The costs associated with insurance premiums
must be included in the total cost of the credit if the insurance is taken out when the credit agreement is concluded. The
instalment is therefore EUR 152,31.

The equation becomes:

or:

5 940 ¼ 152,31

1 (cid:1)

h

1
ð1 þ XÞ1=12i48
ð1 þ XÞ1=12 (cid:1) 1

5 940 ¼ 152,31

1

ð1 þ XÞ1=12 þ 152,31

1

ð1 þ XÞ2=12 þ : : : þ 152,31

1
ð1 þ XÞ48=12

giving X = 11,1070115 %, i.e. an APR of 11,1 %.

Example 6

Balloon-type credit agreement for a total amount of credit of EUR 6 000,00 (purchasing price of a car to be financed),
repayable in 47 equal monthly instalments of EUR 115,02 plus a final payment of EUR 1 915,02 representing the
residual value of 30 % of the capital (balloon agreement), plus insurance of EUR 3,00 per month. Again, the costs
associated with insurance premiums must be included in the total cost of the credit if the insurance is taken out when
the credit agreement is concluded. The instalment is therefore EUR 118,02, and the final payment will amount to
EUR 1 918,02.

31.12.2002

EN

Official Journal of the European Communities

C 331 E/239

The equation becomes:

6 000 ¼ 118,02

or:

1 (cid:1)

h

1
ð1 þ XÞ1=12i47
ð1 þ XÞ1=12 (cid:1) 1

þ 1 918,02

1
½ð1 þ XÞ1=12(cid:2)48

6 000 ¼ 118,02

1

ð1 þ XÞ1=12 þ 118,02

1

ð1 þ XÞ2=12 þ : : : 118,02

1
ð1 þ XÞ47=12 þ

ð1 800 þ 115,02 þ 3Þ

1
ð1 þ XÞ48=12

giving X = 9,381567 %, i.e. an APR of 9,4 %.

Example 7

Credit agreement for a total amount of credit (capital) of EUR 6 000,00 with administrative charges of EUR 60,00
payable on conclusion of the contract, and two payment periods of 22 and 26 months respectively. The second-period
instalment corresponds to 60 % of the first-period instalment. The respective monthly instalments are EUR 186,36 and
EUR 111,82.

The equation becomes:

5 940 ¼ 186,36

or:

1 (cid:1)

h

1
ð1 þ XÞ1=12i22
ð1 þ XÞ1=12 (cid:1) 1

("

þ

111,82

1 (cid:1)

h

1
ð1 þ XÞ1=12i26
ð1 þ XÞ1=12 (cid:1) 1

)

#

1
ð1 þ XÞ1=12i22

h

"

5 940 ¼

186,36

1

ð1 þ XÞ1=12 þ 186,36

1

ð1 þ XÞ2=12 þ : : : þ 186,36

1
ð1 þ XÞ22=12

#

þ

("

111,82

1

ð1 þ XÞ1=12 þ 111,82

1

ð1 þ XÞ2=12 þ : : : þ 111,82

#

1
ð1 þ XÞ26=12

)

1
ð1 þ XÞ1=12i22

h

giving X = 10,04089 %, i.e. an APR of 10,0 %.

Example 8

Credit agreement for a total amount of credit (capital) of EUR 6 000,00, with administrative charges of EUR 60,00
payable on conclusion of the contract, and two payment periods of 22 and 26 months respectively, the first-period
instalment corresponding to 60 % of the second-period instalment. The respective monthly instalments are EUR 112,15
and EUR 186,91.

The equation becomes:

5 940 ¼ 112,15

or:

1 (cid:1)

h

1
ð1 þ XÞ1=12i22
ð1 þ XÞ1=12 (cid:1) 1

("

þ

186,91

1 (cid:1)

h

1
ð1 þ XÞ1=12i26
ð1 þ XÞ1=12 (cid:1) 1

)

#

1
ð1 þ XÞ1=12i22

h

"

5 940 ¼

112,15

1

ð1 þ XÞ1=12 þ 112,15

1

ð1 þ XÞ2=12 þ : : : þ 112,15

1
ð1 þ XÞ22=12

#

þ

("

186,91

1

ð1 þ XÞ1=12 þ 186,91

1

ð1 þ XÞ2=12 þ : : : þ 186,91

#

1
ð1 þ XÞ26=12

)

1
ð1 þ XÞ1=12i22

h

giving X = 9,888383 %, i.e. an APR of 9,9 %.

C 331 E/240

EN

Official Journal of the European Communities

31.12.2002

Example 9

Credit agreement for a total amount of credit (price of goods) of EUR 500,00 repayable in three equal monthly
instalments calculated by applying the borrowing rate T of 18 % (nominal rate), plus administrative charges of 30,00
spread over the payments. The monthly instalment is therefore EUR 171,69 + EUR 10,00 charges = EUR 181,69.

The equation becomes:

or:

500 ¼ 181,69

1 (cid:1)

h

1
ð1 þ XÞ1=12i3
ð1 þ XÞ1=12 (cid:1) 1

500 ¼ 181,69

1

ð1 þ XÞ1=12 þ 181,69

1

ð1 þ XÞ2=12 þ 181,69

1
ð1 þ XÞ3=12

giving X = 68,474596 %, i.e. an APR of 68,5 %.

This example typifies practices still used by certain specialist ‘vendor-credit’ establishments.

Example 10

Credit agreement
(capital) of EUR 1 000, repayable in two instalments of either
EUR 700,00 after one year and EUR 500,00 after two years, or EUR 500,00 after one year and EUR 700,00 after
two years.

for a total amount of credit

The equation becomes:

1 000 ¼ 700

1

h

ð1 þ XÞ1=12i12 þ 500

giving X = 13,898663 %, i.e. an APR of 13,9 %.

or:

1 000 ¼ 500

1

h

ð1 þ XÞ1=12i12 þ 700

1
h
ð1 þ XÞ1=12i24

1
h
ð1 þ XÞ1=12i24

giving X = 12,321446 %, i.e. an APR of 12,3 %.

This example shows that the annual percentage rate of charge depends on the payment periods and that stating the total
cost of the credit in the prior information or in the credit agreement is of no benefit to the consumer. Despite the total
cost of credit being EUR 200 in both cases, there are two different APRs (depending on the speed of repayment).

Example 11

Credit agreement for a total amount of credit of EUR 6 000,00, with a borrowing rate of 9 %, repayment in four equal
annual
the
agreement.

instalments of EUR 1 852,01, and administrative charges of EUR 60,00 payable on conclusion of

The equation becomes:

or:

5 940 ¼ 1 852,01

1 (cid:1)

1
ð1 þ XÞ4

X

5 940 ¼ 1 852,01

1
ð1 þ XÞ

þ 1 852,01

1

ð1 þ XÞ2 þ : : : þ 1 852,01

1
ð1 þ XÞ4

31.12.2002

EN

Official Journal of the European Communities

C 331 E/241

giving X = 9,459052 %, i.e. an APR of 9,5 %.

In the event of early repayment, the equations become:

After one year:

5 940 ¼ 6 540

1
ð1 þ XÞ

where 6 540 is the sum due,
amortisation table,

including interest, before payment of the first scheduled payment according to the

giving X = 10,101010 %, i.e. an APR of 10,1 %.

After two years:

5 940 ¼ 1 852,01

1
ð1 þ XÞ

þ 5 109,91

1
ð1 þ XÞ2

where 5 109,91 is the sum due, including interest, before payment of the second scheduled payment according to the
amortisation table,

giving X = 9,640069 %, i.e. an APR of 9,6 %.

After three years:

5 940 ¼ 1 852,01

1
ð1 þ XÞ

þ 1 852,01

1

ð1 þ XÞ2 þ 3 551,11

1
ð1 þ XÞ3

where 3 551,11 is the sum due, including interest, before payment of the third scheduled payment according to the
amortisation table,

giving X = 9,505315 %, i.e. an APR of 9,5 %.

This shows how the provisional APR decreases in the course of time, especially where charges are payable on
conclusion of the agreement.

This example can also serve to illustrate the case of a mortgage credit intended to refinance current credit agreements
where the costs (notary's fees, registration, taxes) are due when the authenticated act is completed and the funds are
made available to the consumer from the same date.

Example 12

Credit agreement for a total amount of credit of EUR 6 000, with a borrowing rate T of 9 % (nominal rate), repayment
in 48 monthly instalments of EUR 149,31 (calculated proportionally), and administrative charges of EUR 60,00 payable
on conclusion of the agreement.

The equation becomes:

or:

5 940 ¼ 149,31

1 (cid:1)

h

1
ð1 þ XÞ1=12i48
ð1 þ XÞ1=12 (cid:1) 1

5 940 ¼ 149,31

1

ð1 þ XÞ1=12 þ 149,31

1

ð1 þ XÞ2=12 þ : : : þ 149,31

1
ð1 þ XÞ48=12

C 331 E/242

EN

Official Journal of the European Communities

31.12.2002

giving X = 9,9954957 %, i.e. an APR of 10 %.

However, in the case of early repayment, this becomes:

After one year:

5 940 ¼ 149,31

1 (cid:1)

h

1
ð1 þ XÞ1=12i11
ð1 þ XÞ1=12 (cid:1) 1

þ 4 844,64

1
h
ð1 þ XÞ1=12i12

where 4 844,64 is the sum due, including interest, before payment of the 12th scheduled payment according to the
amortisation table,

giving X = 10,655907 %, i.e. an APR of 10,7 %.

After two years:

5 940 ¼ 149,31

1 (cid:1)

h

1
ð1 þ XÞ1=12i23
ð1 þ XÞ1=12 (cid:1) 1

þ 3 417,58

1
ð1 þ XÞ1=12i24
h

where 3 417,58 is the sum due, including interest, before payment of the 24th monthly instalment according to the
amortisation table,

giving X = 10,136089 %, i.e. an APR of 10,1 %.

After three years:

5 940 ¼ 149,31

1 (cid:1)

h

1
ð1 þ XÞ1=12i35
ð1 þ XÞ1=12 (cid:1) 1

þ 1 856,66

1
ð1 þ XÞ1=12i36
h

where 1 856,66 is the sum due, including interest, before payment of the 36th monthly instalment according to the
amortisation table,

giving X = 9,991921 %, i.e. an APR of 10 %.

Example 13

Total amount of credit (capital) of EUR 6 000,00, repayable in four equal annual instalments of EUR 1 852,00. Let us
now assume that the borrowing rate (nominal rate) is variable and increases from 9,00 % to 10,00 % after the second
annual instalment. This results in a new annual instalment of EUR 1 877,17. Remember that, in calculating the APR, it
is normally assumed that the borrowing rate and other costs remain fixed at the initial level and apply until the end of
the credit agreement. In that case (example 1), the APR will be 9 %.

In the event of any change to the rate, the new APR must be communicated and calculated on the assumption that the
credit agreement will remain in force for the rest of the agreed duration, and that the creditor and consumer will fulfil
their obligations under the terms and by the dates agreed.

The equation becomes:

5 940 ¼ 1 852,01

1 (cid:1)

1
ð1 þ XÞ2

X

"

þ

1 877,17

1 (cid:1)

1
ð1 þ XÞ2

X

#

1
X2

or:

5 940 ¼ 1 852,01

1
ð1 þ XÞ

þ 1 852,01

1
ð1 þ XÞ2 þ

("

giving X = 9,741569, i.e. an APR of 9,7 %.

1

1 877,17

ð1 þ XÞ3 þ 1 877,17

1
ð1 þ XÞ4

#

)

þ

1
X2

31.12.2002

EN

Official Journal of the European Communities

C 331 E/243

Example 14

Total amount of credit (capital) of EUR 6 000,00, repayable in 48 equal monthly instalments of EUR 149,31, with
administrative charges of EUR 60,00 payable on conclusion of the agreement, plus insurance of EUR 3,00 per month.
The costs associated with insurance premiums must be included in the total cost of the credit if the insurance is taken
out when the credit agreement is concluded. The instalment is therefore EUR 152,31 and the calculation, as in example
5, gives X = EUR 11,107112, i.e. an APR of 11,1 %.

Let us now assume that the borrowing rate (nominal) is variable and increases to 10 % after the 17th payment. This
change requires a new APR to be communicated and calculated on the assumption that the credit agreement will remain
in force for the rest of the agreed duration, and that the creditor and consumer will fulfil their obligations under the
terms and on the dates agreed.

The equation becomes:

5 940 ¼ 151,91

1 (cid:1)

1
h
ð1 þ XÞ1=12i17
ð1 þ XÞ1=12 (cid:1) 1

"

þ

154,22

1 (cid:1)

h

1
ð1 þ XÞ1=12i31
ð1 þ XÞ1=12 (cid:1) 1

#

1
h
ð1 þ XÞ1=12i17

or:

"

5 940 ¼

151,91

1

ð1 þ XÞ1=12 þ 151,91

1

ð1 þ XÞ2=12 þ : : : þ 151,91

1
ð1 þ XÞ17=12

#

þ

("

154,22

1

ð1 þ XÞ1=12 þ 154,22

1

ð1 þ XÞ2=12 þ : : : þ 154,22

#

1
ð1 þ XÞ31=12

)

1
ð1 þ XÞ1=12i17

h

giving X = 11,542740 %, i.e. an APR of 11,5 %.

Example 15

Credit agreement of the ‘leasing’ type for a car with a value of EUR 15 000. The agreement stipulates 48 monthly
instalments of EUR 350. The first monthly instalment is payable as soon as the car is placed at the consumer's disposal.
At the end of the 48 months the purchase option may be taken up by paying the residual value of EUR 1 250.

The equation becomes:

14 650 ¼ 350

1 (cid:1)

h

1
ð1 þ XÞ1=12i47
ð1 þ XÞ1=12 (cid:1) 1

þ 1 250

1
h
ð1 þ XÞ1=12i48

or:

14 650 ¼ 350

1

ð1 þ XÞ1=12 þ 350

1

ð1 þ XÞ2=12 þ : : : þ 350

1

ð1 þ XÞ47=12 þ 1 250

1
ð1 þ XÞ48=12

giving X = 9,541856 %, i.e. an APR of 9,5 %.

Example 16

Credit agreement of the ‘financing’, ‘vendor credit’ or ‘hire purchase’ type for goods with a value of EUR 2 500. The
credit agreement provides for a down-payment of EUR 500 plus 24 monthly instalments of EUR 100, the first of
which must be paid within 20 days of the goods being placed at the consumer's disposal.

C 331 E/244

EN

Official Journal of the European Communities

31.12.2002

In such cases the down-payment is never part of the financing operation.

The equation becomes:

ð2 500 (cid:1) 500Þ

1
ð1 þ XÞ1=365i½365
h

12 (cid:1)20(cid:2)

¼ 100

1 (cid:1)

h

1
ð1 þ XÞ1=12i24
ð1 þ XÞ1=12 (cid:1) 1

or:

2 000

1

ð1 þ XÞ

10,4316
365

¼ 100

1

ð1 þ XÞ1=12 þ 100

1

ð1 þ XÞ2=12 þ : : : þ 100

1
ð1 þ XÞ24=12

giving X = 20,395287, i.e. an APR of 20,4 %.

Example 17

Credit agreement for a credit line of EUR 2 500 for a period of six months. The credit agreement provides for payment
of the total cost of the credit every month and repayment of the total amount of the credit at the end of the agreement.
The annual borrowing rate (effective rate) is 8 %, and the charges amount to 0,25 % per month. The assumption that the
amount of credit is drawn down immediately and in full applies here.

The monthly borrowing interest payment is calculated on the basis of an equivalent monthly rate, using the equation:

a ¼ 2 500

(cid:1)h

i
ð1,08Þ1=12 (cid:1) 1

(cid:2)

þ 0,25

or:

This becomes:

This becomes:

a = 2 500 (0,006434 + 0,0025) = 22,34

2 500 ¼ 22,34

1 (cid:1)

1
h
ð1 þ XÞ1=12i6
ð1 þ XÞ1=12 (cid:1) 1

þ 2 500

1
ð1 þ XÞ6=12

2 500 ¼ 22,34

1

ð1 þ XÞ1=12 þ 22,34

1

ð1 þ XÞ2=12 þ : : : þ 22,34

1

ð1 þ XÞ6=12 þ 2 500

1
ð1 þ XÞ6=12

giving X = 11,263633, i.e. an APR of 11,3 %.

Example 18

Credit agreement for an open-end credit line of EUR 2 500. The agreement provides for a minimum half-yearly
the outstanding balance (capital and interest), with a minimum of EUR 25. The annual
payment of 25 % of
borrowing rate (effective rate)
is 12 %, and the administrative charge payable on conclusion of the agreement is
EUR 50.

(The equivalent monthly rate is obtained by the equation:

i ¼ ð1 þ 0,12Þ6=12 (cid:1) 1 ¼ 0,00583

or 5,83 %).

31.12.2002

EN

Official Journal of the European Communities

C 331 E/245

The 19 half-yearly repayments (Dl) can be obtained from an amortisation table, giving D1 = 661,44; D2 = 525;
D3 = 416,71; D4 = 330,75; D5 = 262,52; D6 = 208,37; D7 = 165,39; D8 = 208,37; D9 = 104,20; D10 = 82,70;
D11 = 65,64; D12 = 52,1; D13 = 41,36; D14 = 32,82; D15 = 25; D16 = 25; D17 = 25; D18 = 25; D19 = 15,28.

The equation becomes:

2 500 (cid:1) 50 ¼ 661,44

1

ð1 þ XÞ6=12 þ 525

1

ð1 þ XÞ12=12 þ : : : þ 25

1

ð1 þ XÞ108=12 þ 15,28

1
ð1 þ XÞ114=12

giving X = 13,151744 %, i.e. an APR of 13,2 %.

Example 19

Credit agreement for an open-end credit line involving the use of a card for drawdowns. Total amount of the credit:
EUR 700. The agreement provides for a minimum monthly payment of 5 % of the outstanding balance (capital and
interest), and the scheduled instalment (a) may not be less than EUR 25. The annual cost of the card is EUR 20. The
annual borrowing rate (effective rate) is 0 % for the first instalment and 12 % for the subsequent instalments.

The 31 monthly repayment amounts (Dl) can be obtained from an amortisation table, giving D1 = 55,00; D2 = 33,57;
D3 = 32,19; D4 = 30,87; D5 = 29,61; D6 = 28,39; D7 = 27,23; D8 = 26,11; D9 = 25,04; D10 à D12 = 25,00; D13 = 45;
D14 à D24 = 25,00; D25 = 45; D26 à D30 = 25,00; D31 = 2,25.

The equation becomes:

700 ¼ 55

1

ð1 þ XÞ1=12 þ 33,57

1

ð1 þ XÞ2=12 þ : : : þ 25

1

ð1 þ XÞ30=12 þ 2,25

1
ð1 þ XÞ31=12

giving X = 18,470574, i.e. an APR of 18,5 %.

Example 20

Open-end credit line in the form of an advance on a current account. Total amount of credit: EUR 2 500. The credit
agreement does not impose any requirements in terms of repayment of capital, but provides for monthly payment of
the total cost of the credit. The annual borrowing rate is 8 % (effective rate). The monthly charges amount to EUR 2,50.

It is assumed that the full amount of credit will be drawn down, with repayment in theory after one year.

First of all, the theoretical scheduled payment of interest and charges (a) is calculated

a ¼ 2 500

i
h
ð1,08Þ1=12 (cid:1) 1

þ 2,50

then:

i.e.:

2 500 ¼ 18,59

1 (cid:1)

h

1
ð1 þ XÞ1=12i12
ð1 þ XÞ1=12 (cid:1) 1

þ 2 500

1
ð1 þ X1=12Þ12

2 500 ¼ 18,59

1

ð1 þ XÞ1=12 þ 18,59

1

ð1 þ XÞ2=12 þ : : : þ 18,59

1

ð1 þ XÞ12=12 þ 2 500

1
ð1 þ XÞ12=12

giving X = 9,295804, i.e. an APR of 9,3 %.

C 331 E/246

EN

Official Journal of the European Communities

31.12.2002

CALCULATION OF THE ANNUAL PERCENTAGE RATE OF CHARGE FOR A CONTRACT REQUIRING
ADVANCE OR ACCOMPANYING SAVINGS AND FOR WHICH THE BORROWING RATE IS SET TO
REFLECT THE LEVEL OF SAVINGS

ANNEX III

Symbols used:

— C = Capital

— N = duration in years

— T = annual borrowing rate

— A = annuity

— F = periodicity

— n = duration in periods

— t = periodic borrowing rate

— a = periodic repayment

— M = saving period

1. MIXED CREDIT AGREEMENT WITH (COMPULSORY) SAVINGS IN ADVANCE

First example

The granting of a credit C totalling EUR 6 000 over N = two years is subject to the saving in advance over M = two
years of half of the said amount, i.e. EUR 3 000 in all, of which the final amount saved is EUR 125 and is deposited
one month prior to the drawdown of the credit. The savings in question attract no interest but the borrowing rate for
the credit agreement will amount to no more than T = 6 % at a time when market conditions are setting a rate of 9 %
instead.

The amount saved each month is e = EUR 125,00, the monthly repayment a = EUR 140,91, the APR, excluding
savings, is 6,17 % or 6,2 %.

To find the annual percentage rate applicable to the transaction as a whole the formula is as follows:

"

6 000 þ 3 000 ¼

125

1 (cid:1)

h

1
ð1 þ XÞ1=12i24
ð1 þ XÞ1=12 (cid:1) 1

h

ð1 þ XÞ1=12i25

#

"

þ

140,91

1 (cid:1)

1
ð1 þ XÞ1=12i48
h
ð1 þ XÞ1=12 (cid:1) 1

#

or:

("

6 000 þ 3 000 ¼

125

1

ð1 þ XÞ1=12 þ 125

1

ð1 þ XÞ2=12 þ : : : þ 125

1
ð1 þ XÞ24=12

#
h

ð1 þ XÞ1=12i25

)

þ

"

140,91

1

ð1 þ XÞ1=12 þ 140,91

1

ð1 þ XÞ2=12 þ : : : þ 140,91

#

1
ð1 þ XÞ48=12

To solve the equation using a recursive method, let X1 = 0,062, and the value of the first member calculated as 170,5.

then X2 = 0,063 and the value of the first member is calculated as 163,3.

and so forth

then X26 = 0,087 and the value of the first member is calculated at 6,0.

then X27 = 0,088 and the value of the first member is calculated at 0,1.

then X28 = and the value of the first member is calculated at – 5,7.

31.12.2002

EN

Official Journal of the European Communities

C 331 E/247

The correct solution is X = 8,802245 %, or 8.8 % and this is the APR to be given to the consumer as the APR for the
credit agreement involving an amount to be saved in advance.

Second example

The granting of a credit C totalling EUR 6 000 over N = two years is subject to the saving in advance over M = two
years of half of the said amount, i.e. EUR 3 000 in all, of which the final amount saved is EUR 125 and is deposited
one month prior to the drawdown of the credit. These savings attract a lending rate of S = 3 % and the borrowing rate is
only T = 6 % at a time when market conditions set rates at 9 %.

The amount saved each month is e = EUR 125,00, the monthly repayment a = EUR 140,91, the APR, excluding savings
is 6,17 % or 6.2 %.

The updated future value of M will be M' calculated according to the following formula:

M0 ¼ 125

ð1 þ iÞn (cid:1) 1
i

where i = (1 + S)1/12 – 1 and n = 24 months.

or:

and

M0ðt(cid:1)1Þ ¼ 125

ð1,03Þ24=12 (cid:1) 1
ð1,03Þ1=12 (cid:1) 1

¼ 3 086; 65

M0ðt0Þ ¼ 3 086; 65ð1,03Þ1=12 ¼ 3 094,26

where t0 = time of credit drawdown.

To find the APR for the transaction as a whole:

3 094,26 þ 6 000 ¼

125

"

1 (cid:1)

1
h
ð1 þ XÞ1=12i24
ð1 þ XÞ1=12 (cid:1) 1

h
ð1 þ XÞ1=12i25

#

"

þ

140,91

1 (cid:1)

1
h
ð1 þ XÞ1=12i48
ð1 þ XÞ1=12 (cid:1) 1

#

or:

3 094,26 þ 6 000 ¼

125

("

1

ð1 þ XÞ1=12 þ 125

1

ð1 þ XÞ2=12 þ : : : þ 125

1
ð1 þ XÞ24=12

#
h

ð1 þ XÞ1=12i25

)

þ

"

140,91

1

ð1 þ XÞ1=12 þ 140,91

1

ð1 þ XÞ2=12 þ : : : þ 140,91

#

1
ð1 þ XÞ48=12

To solve the equation a recursive method can again be used with X = 7,484710, or an APR of 7,5 %.

C 331 E/248

EN

Official Journal of the European Communities

31.12.2002

2. MIXED AGREEMENT WITH ACCOMPANYING SAVINGS

2.1. Mixed credit agreement with optional savings (advances to current account)

See Annex II, example 20. Savings do not form part of the APR calculation.

2.2. Credit agreement with mixed life assurance

These are endowment-type mortgages such as those referred to in Article 20 of this directive, where saving forms part
of the agreement.

Let the total amount of credit be EUR 6 000 to be repaid in four annuities at a borrowing rate of 9 % but structured as
repayments in fine. Suppose that the manager of the fund has paid at the end of each of the three first years an amount
of 1 200 and that this amount saved has attracted 4 %. The balance of this account, before the final repayment is due,
will be EUR 3 895,76. It will then be necessary for him to add an additional EUR 2 104,24. His timetable will be for
three annuities at EUR 1 740,00 and one at EUR 2 644,24 for a capital of EUR 6 000.

The formula:

or:

6 000 ¼ 1 740

1 (cid:1)

1
ð1 þ XÞ3

X

þ 2 644,24

1
ð1 þ XÞ4

6 000 ¼ 1 740

1

ð1 þ XÞ1 þ 1 740

1

ð1 þ XÞ2 þ 1 740

1

ð1 þ XÞ3 þ 2 644,24

1
ð1 þ XÞ4

and X = 10,955466, or an APR of 10,96 %.