CELEX: 51989PC0271
Language: en
Date: 1989-05-29
Title: AMENDED PROPOSAL FOR A COUNCIL DIRECTIVE AMENDING DIRECTIVE 87/102/EEC FOR THE APPROXIMATION OF THE LAWS, REGULATIONS AND ADMINISTRATIVE PROVISIONS OF THE MEMBER STATES CONCERNING CONSUMER CREDIT

No C 155/4                             Official Journal of the European Communities                         23. 6. 89
                                                              II
                                                      (Preparatory Acts)
                                                 COMMISSION
              Amended proposal for a Council Directive amending Directive 87/102/EEC for the approxi-
              mation of the laws, regulations and administrative provisions of the Member States concerning
                                                     consumer credit (')
                                               COM(89) 271 final — SYN 132
              (Submitted by the Commission pursuant to Article 149 (3) of the EEC Treaty on 29 May 1989)
                                                        (89/C 155/04)
              0) OJ No C 155, 14. 6. 1988, p. 10.
                     ORIGINAL PROPOSAL                                              AMENDED PROPOSAL
THE COUNCIL OF THE EUROPEAN COMMUNITIES,                          THE COUNCIL OF THE EUROPEAN COMMUNITIES,
Having regard to the Treaty establishing the European             unchanged
Economic Community, and in particular Article 100A
thereof,
Having regard to the proposal from the Commission,                unchanged
In cooperation with the European Parliament,                      unchanged
Having regard to the opinion of the Economic and                  unchanged
Social Committee,
Whereas it is desirable, in order to promote the estab-           unchanged
lishment and functioning of the internal market and to
safeguard its consumers at a high level of protection,
that, despite the differences in development of certain
economies, one method of calculating the annual
percentage rate of charge for credit should be used
throughout the Community;
Whereas Article 5 of Council Directive 87/102/EEC (')             unchanged
anticipates the introduction of a Community method of
calculating the annual percentage rate of charge for
credit;
Whereas it is desirable, as a first step towards the estab-       deleted
lishing of such a method, that an appropriate math-
ematical formula be laid down for the purpose of calcu-
lating the annual percentage rate of charge; whereas it is
useful to adopt common rules concerning such a
formula, although the cost items which will have to be
taken into account in calculating the annual percentage
rate of charge remain to be determined,
O OJ No L 42, 12. 2. 1987, p. 48.
 ---pagebreak--- 23. 6. 89                              Official Journal of the European Communities                            No C 155/5
                      ORIGINAL PROPOSAL                                                AMENDED PROPOSAL
HAS ADOPTED THIS DIRECTIVE:                                      HAS ADOPTED THIS DIRECTIVE:
                           Article 1                                                       Article 1
Council Directive 87/102/EEC is hereby amended as                unchanged
follows:
1. In Article     1 (2) (e), the definition of 'annual
   percentage     rate of charge' is replaced by the
   following:
   '(e) "annual percentage rate of charge" means the
         total cost of the credit to the consumer,
         expressed as an annual percentage of the amount
         of the credit granted and calculated in
         accordance with Article la of this Directive.'
2. The following Article la is inserted:                         2. The following Article la is inserted:
    Article la                                                      Article la
    1.    For the purpose of stating the annual percentage          1. (a) The annual percentage rate of charge, which is
   rate of charge for credit, the rate which equalizes the                 the rate which equalizes, on an annual basis,
   present values of the prospective or actual                             the present values of all commitments (loans,
   commitments of the lender and borrower shall be                         repayments and charges), existing or future,
   calculated in accordance with the method set out in                     entered into by the creditor and the borrower,
   Annex II.                                                               shall be calculated in accordance with the
                                                                           mathematical formulae set out in Annex II.
                                                                       (b) A simple illustration is given in Annex II.
                                                                           Further examples of calculations are given in
                                                                           Annex III.
   2.     The annual percentage rate of charge shall be                (a) For the purpose of calculating the annual
   calculated at the time of concluding an agreement for                   percentage rate of charge, the total cost of the
   credit.                                                                 credit to the consumer shall be ascertained by
                                                                           including every item of cost which the
                                                                           consumer must pay as a condition of obtaining
                                                                           the credit, including interest and all other
                                                                           charges.
                                                                       (b) For the purpose aforesaid the following items
                                                                           shall not form part of the total cost of the
                                                                           credit to the consumer:
                                                                             (i) charges payable by the consumer if he
                                                                                 fails to comply with his obligation under
                                                                                 the credit agreement;
                                                                            (ii) charges which, in a transaction of
                                                                                 purchase of goods or services, the
                                                                                 consumer is obliged to pay irrespective of
                                                                                 whether he purchases for cash or by
                                                                                 means of the credit;
 ---pagebreak--- No C 155/6                 Official Journal of the European Communities                                 23. 6. 89
           ORIGINAL PROPOSAL                                                AMENDED PROPOSAL
                                                               (iii) charges payable by the consumer for the
                                                                      transmission of money in reimbursement
                                                                      of the credit and in payment of the
                                                                      interest and other charges, if the creditor
                                                                      imposes upon the consumer special and
                                                                      onerous requirements in this respect.
                                                                      However, if the creditor is obliged to pay
                                                                      charges for receiving the consumer's
                                                                      payments relating to the credit, these
                                                                      charges shall be included in the total cost
                                                                      of the credit to the consumer if the
                                                                      creditor recoups them from the consumer;
                                                                (iv) charges payable by the consumer for or
                                                                      related to services or benefits which are
                                                                      both incidental to the credit agreement
                                                                      and payable pursuant to an obligation
                                                                      existing before the consumer entered into
                                                                     the credit agreement (such as a
                                                                      subscription for membership of a club,
                                                                      association or cooperative);
                                                                 (v) premiums for insurances or guarantees
                                                                     which do not have the objective of
                                                                     ensuring or securing payment to the
                                                                     creditor in the event of the death, sickness
                                                                     or unemployment of the consumer, of a
                                                                     sum equal in amount to that of the credit,
                                                                     with interest and other charges, or to
                                                                     parts thereof;
                                                               (vi) premiums for insurances or guarantees
                                                                     which, although their purpose is to ensure
                                                                     or to secure such payment, are never-
                                                                     theless not paid pursuant to an obligation
                                                                     imposed upon the consumer by the
                                                                     creditor and accordingly cannot be
                                                                     regarded as being payable "as a condition
                                                                     of obtaining the credit";
                                                              (vii) premiums for the insurance of motor
                                                                     vehicles, unless the cover exceeds the
                                                                     statutory requirement of insurance for
                                                                     damage to third parties and the increased
                                                                     insurance is contracted by the consumer
                                                                     pursuant to an obligation imposed by the
                                                                     creditor and must accordingly be
                                                                     regarded as being payable "as a condition
                                                                     of obtaining the credit".
                                                       3. (a) The annual percentage rate of charge shall be
                                                              calculated as at the time of concluding the
                                                              credit agreement; but this rule is without
                                                              prejudice to the provisions of Article 3 relating
                                                              to advertisements and offers.
 ---pagebreak--- 23. 6. 89                            Official Journal of the European Communities                             No C 155/7
                    ORIGINAL PROPOSAL                                                AMENDED PROPOSAL
                                                                       (b) The calculation shall be made on the
                                                                            assumption that the credit agreement runs for
                                                                           its agreed period and that the creditor and the
                                                                           consumer perform their obligations thereunder
                                                                           in the manner and at the time or times agreed.
                                                                   4.    Where a credit agreement contains terms
                                                                   whereunder the rate of interest and the amount or
                                                                   rate of the other items of cost can be varied, the
                                                                   annual percentage rate of charge shall be calculated
                                                                   on the basis that the relevant rate or amount remains
                                                                   fixed at that applicable at the time of conclusion of
                                                                   the credit agreement.
                                                                   5.    Where the amount of an item or items of cost
                                                                   affecting the calculation of the annual percentage rate
                                                                  of charge has not been specified beyond doubt in the
                                                                  credit agreement, the annual percentage rate of
                                                                  charge shall be calculated on the basis of the
                                                                  following assumptions:
                                                                  — if no credit limit is stated in the credit agreement,
                                                                       that the amount of credit granted is equal to an
                                                                       amount fixed by the relevant Member State, not
                                                                       exceeding the equivalent of ECU 2 000;
                                                                  — if the credit agreement contains no fixed timetable
                                                                       for the making of payments by the consumer in
                                                                       reimbursement of the credit, with interest and
                                                                       other charges, that the duration of the credit
                                                                       agreement is one year;
                                                                  — unless otherwise specified, that the amount of the
                                                                       credit will be made available and that the
                                                                       payments in reimbursement of the credit, with
                                                                       interest and other charges, will be made at the
                                                                       earliest moment provided for in the credit
                                                                       agreement.
  3.    The use in a Member State of a method of                  6.     The use in a Member State of a method of
  calculation other than that shown in Annex II shall be          calculation other than that shown in Annex II shall be
  allowed only if the resulting annual percentage rate of         allowed only if the resulting annual percentage rate of
  charge does not diverge by more than one tenth of               charge does not diverge by more than one tenth of
  one per cent from the rate of charge yielded by the             one percentage point from the rate of charge yielded
  method shown in the said Annex.                                 by the method shown in that Annex.'
  4.    In the case of credit on current account, the             deleted
  method of calculation shown in Annex II shall be
  applied on the basis of the assumptions set out in
  Annex III.'
                                                               3. The following subparagraphs (c) (d) and (e) are
                                                                  inserted in Article 4 (2):
 ---pagebreak--- No C 155/8                            Official Journal of the European Communities                                 23. 6. 89
                    ORIGINAL PROPOSAL                                                  AMENDED PROPOSAL
                                                                   '(c) a statement of the amount in money, and the
                                                                        number and periodicity of the payments to be
                                                                        made by the consumer in reimbursement of the
                                                                        credit and in payment of the interest and other
                                                                        charges; and a statement of the total of those
                                                                        money amounts;
                                                                    (d) a statement of the items of cost which have not
                                                                        been included in calculating the annual
                                                                        percentage rate of charge but which the
                                                                        consumer may nevertheless in certain circum-
                                                                        stances have to pay for or in connection with the
                                                                        credit; and also a statement specifying those
                                                                        circumstances. Where the true amounts of these
                                                                        items, in money, are known they shall be stated;
                                                                        otherwise they shall be stated as estimates made
                                                                        as realistically as possible;
                                                                    (e) a statement of the relevant conditions in cases
                                                                        where the credit is granted subject to conditions
                                                                        which are not specifically referable to the credit
                                                                        nature of the agreement, such as for example:
                                                                        — that the consumer must conclude a certain
                                                                            insurance or certain insurances, or
                                                                        — that the consumer must achieve certain
                                                                            savings which are to be placed on a particular
                                                                            account, or
                                                                        — that the consumer must be or become of a
                                                                            certain club, association or cooperative.'
3. Article 5 of the said Directive is repealed.                 deleted
4. The Annex becomes Annex I. Annexes II and III in             4. The Annex becomes Annex 1; and Annexes II and III
   the Annex to this Directive are added.                          contained in the Annex to this Directive are added.
                         Article 2                                                         Article 2
1.   Member States shall take the necessary measures to               unchanged
comply with this Directive not later than 31 December
1992 and shall forthwith inform the Commission thereof.
Member States shall communicate to the Commission
the texts of the main provisions of national law which
they adopt in the field covered by this Directive.
                                                                2.    The provisions adopted pursuant to the first
                                                                subparagraph shall make express reference to this
                                                                Directive.
                         Article 3                                                         Article 3
This Directive is addressed to the Member States.               unchanged
 ---pagebreak---  23. 6. 89                                   Official J o u r n a l of the E u r o p e a n C o m m u n i t i e s                         N o C 155/9
                                                                       ANNEX
                                                                       'Annex II
                                                                   The basic equation
                         The general formula                                                                   A simple illustration
 The lender advances a sum S.                                                   S = E C U 1 000
 Borrower repays in n payments, numbered 1, 2, 3 . . . tk . . . n.              Two repayments: 1 and 2
                                                                                       (n = 2)
                                                                                of ECU 600 each.
 These payments are not necessarily of equal amount, nor are                   The payments are of equal amount.
 the intervals between them necessarily of equal length. The
 dates to be considered are the date of the loan and the dates of
 the repayments.
 Payment k is made tk years after the date of the loan (tk being               The payments are made at equal intervals, after one and two
 not necessarily a full number).                                               years, respectively
                                                                               tf = 1 and t, = 2.
The effective annual rate is i.                                                The effective annual rate is i.
The equation which equalizes the present values of the loan and                The equation then appears as follows:
 repayments by the borrower is as follows:
                                                                                                                    600           600
                     s= 2                                                                       1 000 =                     +         -2
                                                                                                                                 (1+i)2
                            k =    I
                                      O+ift                                                                       (1 + i)
This enables i to be calculated provided that the amount of each               The loan = the present value of the first payment plus the
payment A/, is known (').                                                      present value of the second payment.
                                                                               This is a quadratic equation with i, which can be solved by
                                                                              algebra:
                                                                              i = 0,1306623 . . .
                                                                              This can be rounded off to i = 13,1 or 13,07 % depending on
                                                                              whether the State, or usage permits a margin of tolerance of
                                                                              one or two decimal points.
Inversely, the amount of a repayment can be calculated in this                If the payment at the end of the first year was reduced from
way if one knows the amounts and dates of other repayments,                   ECU 600 to ECU 500, and if i was rounded off to 13,1 % ,
and the effective annual rate i.                                              payment at the end of the second year would be ECU 713,66
                                                                               (linear equation).
(') The amendments to the original proposal are in italics.
 ---pagebreak--- N o C 155/10                                 Official J o u r n a l of the E u r o p e a n C o m m u n i t i e s                            23. 6. 89
                                                                      ANNEX      III
                          ORIGINAL PROPOSAL                                                                   AMENDED PROPOSAL
Adaptation of the method of calculation shown in Annex I to the                                      Further examples of Calculations
                    case of running account credit
"Where the annual percentage rate of charge is to be indicated in               First example
relation to an agreement for credit on a current account, the
                                                                                Sum loaned S = ECU 1 000.
following assumptions shall be made:
                                                                                It is repaid in a single payment of ECU 1 200 made 18 months,
(a) the rate of interest does not change;                                       i.e. 1,5 years, after the date of the loan.
                                                                                                                             1 200
(b) (i) if there is no fixed timetable for payment, the duration               The equation becomes 1 000 =
          of the credit is one year;                                                                                       (l+i)1.5
                                                                                or ( 1 + i ) 1 - 5 =   1,2
     (ii) if there is a fixed timetable for payment, it is observed
          by the borrower;                                                            1+ i         = 1,129243
                                                                                           i       - 0,129243
(c) (i) if the agreement specifies a credit limit, the credit
          granted is equal to that limit;                                      This amount will be rounded off to 12,9 % or 12,92 %
                                                                               depending on whether the State or usage permits a margin of
     (ii) if no credit limit is stated in the agreement, the credit            tolerance of one or two decimal points.
          granted is equal to the amount fixed by the relevant
          Member State, not exceeding ECU 200;                                  Second example
(d) unless otherwise specified, the credit is made available and               The sum agreed is S = ECU 1 000 but the creditor retains
    the payments are made at the earliest moment provided for                  ECU 50 for enquiry and administrative expenses, so that the
    in the agreement.                                                          loan is in fact ECU 950; the repayment of ECU 1 200, as in the
                                                                               first example, is made 18 months after the date of the loan.
                                                                                                                            1 200
                                                                               The equation becomes 950 =
                                                                                                                          (1+i)1-5
                                                                                                           1200
                                                                               or (1 + i)i.5 =                    = 1,263157
                                                                                                            950
                                                                                      1+ i                 1,16851
                                                                                                          0,16851 rounded off to 16,9 or 16,85 %
                                                                                                          depending on whether the State or usage
                                                                                                          permits a margin of tolerance of one or two
                                                                                                          decimal points.
                                                                                Third example
                                                                               The sum lent is ECU 1 000 and the amounts to be paid by the
                                                                               borrower are:
                                                                               After three months (0,25 years):                272  ECU
                                                                               After six months (0,50 years):                  272  ECU
                                                                               After 12 months (1 year):                       544  ECU
                                                                               Total:                                        1 088  ECU.
                                                                               The equation becomes:
                                                                                                   272              272          544
                                                                               1 000 =                        +
                                                                                               (1+i)0'25         (1+i)          1+ i
                                                                               This equation allows i to be calculated by successive approxi-
                                                                               mations, which can be programmed on a pocket computer.
                                                                               The result is:        i = 0,1321 rounded off to 13,2 or 13,21 %,
                                                                                                             depending on whether the State or usage
                                                                                                             permits a margin of tolerance of one or
                                                                                                             two decimal points.'