CELEX: 51988PC0201
Language: en
Date: 1988-05-02
Title: 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 155/10                            Official Journal of the European Communities                                  14. 6. 88
                                                               II
                                                       (Preparatory Acts)
                                                  COMMISSION
              Proposal for a Council Directive amending Directive 87/102/EEC for the approximation of the
              laws, regulations and administrative provisions of the Member States concerning consumer
                                                             credit
                                                COM(88) 201 final — SYN 132
                                       (Submitted by the Commission on 18 May 1988)
                                                         (88/C 155/06)
THE COUNCIL OF THE EUROPEAN COMMUNITIES,                            HAS ADOPTED THIS DIRECTIVE:
                                                                                              Article 1
Having regard to the Treaty establishing the European
Economic Community, and in particular Article 100A                  Council Directive 87/102/EEC is hereby amended as
thereof,                                                            follows:
                                                                    1. In Article     1 (2) (e), the definition of 'annual
Having regard to the proposal from the Commission,                     percentage    rate of charge' is replaced by the
                                                                       following:
In cooperation with the European Parliament,                           ' "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
Having regard to the opinion of the Economic and                       and calculated in accordance with Article la of this
Social Committee,                                                      Directive.'
                                                                    2. The following Article la is inserted:
Whereas it is desirable, in order to promote the estab-
lishment and functioning of the internal market and to
safeguard its consumers at a high level of protection,                  Article la
that, despite the differences in development of certain
                                                                        1.    For the purpose of stating the annual percentage
economies, one method of calculating the annual
                                                                       rate of charge for credit, the rate which equalizes the
percentage rate of charge for credit should be used
                                                                       present values of the prospective or actual
throughout the Community;
                                                                       commitments of the lender and borrower shall be
                                                                       calculated in accordance with the method set out in
                                                                       Annex II.
Whereas Article 5 of Council Directive 87/102/EEC (')
anticipates the introduction of a Community method of
                                                                       2.    The annual percentage rate of charge shall be
calculating the annual percentage rate of charge for                   calculated at the time of concluding an agreement for
credit;                                                                credit.
                                                                       3.    The use in a Member State of a method of
Whereas it is desirable, as a first step towards the estab-            calculation other than that shown in Annex II shall be
lishing of such a method, that an appropriate math-                    allowed only if the resulting annual percentage rate of
ematical formula be laid down for the purpose of calcu-                charge does not diverge by more than one tenth of
lating the annual percentage rate of charge; whereas it is             one per cent from the rate of charge yielded by the
useful to adopt common rules concerning such a                         method shown in the said Annex.
formula, although the cost items which will have to be
taken into account in calculating the annual percentage                4.     In the case of credit on current account, the
rate of charge remain to be determined,                                method of calculation shown in Annex II shall be
                                                                       applied on the basis of the assumptions set out in
                                                                       Annex III.'
(') OJ No L 42, 12. 2. 1987, p. 48.                                 3. Article 5 of the said Directive is repealed.
 ---pagebreak---  14. 6. 88                                Official Journal of the European Communities                                   N o C 155/11
4. The Annex becomes Annex I.                                        Member States shall communicate to the Commission
    Annexes II and III in the Annex to this Directive are            the texts of the main provisions of national law which
    added.                                                           they adopt in the field covered by this Directive.
                            Article 2
Member States shall take the necessary measures to                                               Article 3
comply with this Directive not later than 31 December
 1992 and shall forthwith inform the Commission thereof.             This Directive is addressed to the Member States.
                                                               ANNEX
                                                              'ANNEX II
                                                      The method of calculation
 The general formula                                                 A simple illustration
The lender advances a sum S.                                         S = 1 000 ECU
Borrower repays in n payments, numbered 1, 2, 3 . . . tk             Two repayments: 1 and 2
                                                                            (n - 2)
                                                                     of 600 ECU each.
These payments are not necessarily of equal amount, not are the      The payments are of equal amount.
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                The payments are made at equal intervals, after one and two
(tk being not necessarily a full number).                            years, respectively
                                                                     (ti — 1 and t2 = 2).
The effective annual rate is i.                                      The effective annual rate is i.
                                                                     The equation then appears as follows:
The equation which equalizes the present values of the loan and
repayments by the borrower is as follows:                                                            600          600 Tl2
                                                                                        1000 -
                                                                                                   (1 + 0       (1 + 0
                         n
                                     Ak.
                    s =S          (1 + 0 tk
                          n •
This enables i to be calculated provided the amounts of payments     The loan = the present value of the first payment plus the
Ak are all 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 1
                                                                     or 2 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 600
way if one knows the amounts and dates of other repayments,          to 500 ECU, and if i was rounded off to 13,1 %, payment at
and the effective annual rate i.                                     the end of the second year would be 713,66 ECU (linear
                                                                     equation).
 ---pagebreak--- No C 155/12                              Official Journal of the European Communities                                    14. 6. 88
                                                             ANNEX III
               Adaptation of the method of calculation shown in Annex I to the case of running account credit
          Where the annual percentage rate of charge is to be indicated in relation to an agreement for credit on a
          current account, the following assumptions shall be made:
          (a) the rate of interest does not change;
          (b) (i) if there is no fixed timetable for payment, the duration of the credit is one year;
              (ii) if there is a fixed timetable for payment, it is observed by the borrower;
          (c) (i) if the agreement specifies a credit limit, the credit granted is equal to that limit;
              (ii) if no credit limit is stated in the agreement, the credit granted is equal to the amount fixed by the
                   relevant Member State, not exceeding 200 ECU;
          (d) unless otherwise specified, the credit is made available and the payments are made at the earliest
              moment provided for in the agreement.'