CELEX: 52005PC0483
Language: en
Date: 2005-10-07
Title: Modified proposal for a Directive of the European Parliament and of the Council on credit agreements for consumers amending Council Directive 93/13/EC (presented by the Commission pursuant to Article 250(2) of the EC Treaty)

COMMISSION OF THE EUROPEAN COMMUNITIES
                                                       Brussels, 23.11.2005
                                                       COM(2005) 483 final/2
                                                       2002/0222(COD)
   CORRIGENDUM: Annule et remplace la page de couverture et la première page de l’acte du
   document COM(2005) 483 final, du 7.10.2005. Cette correction concerne les versions
   linguistiques suivantes: CS, DA, EL, EN, ES, ET, FI, HU, IT, LT, LV, MT, NL, PL, PT, SK,
   SL et SV
                                     Amended proposal for a
        DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL
           on credit agreements for consumers amending Council Directive 93/13/EC
             (presented by the Commission pursuant to Article 250(2) of the EC Treaty)
EN                                                                                          EN
 ---pagebreak---                           EXPLANATORY MEMORANDUM
   1. PROCEDURE
      The Commission adopted on 28th October 2004 a modified proposal for a Directive
      on Consumer Credit following the opinion voted by the European Parliament (EP) on
      20 April 2004.
      After the modified proposal was published, the Commission continued consultation
      with Member States and stakeholders. As a result, the Commission concluded that a
      consolidated text would be useful. In addition the consultations showed the need for
      further substantial modifications in order to avoid unintentionally burdening
      consumer credit business whilst at the same time ensuring a high level of protection
      for consumers. In particular:
      • The Forum Group of experts on mortgages set up by the Commission had issued
         its final report, which contributed to the decision to exclude all mortgage credit
         from the scope of the proposal.
      • The duty to offer advice to the consumer in the pre-contractual stage has been
         clarified and adapted to the circumstances of the credit offer.
      • The flexibility associated with certain provisions is coupled with a mutual
         recognition clause aimed at ensuring that any differences in the resulting
         transposition will not constitute an obstacle to the internal market.
   2. OBJECTIVES
      The Commission has three main objectives in the area of consumer credit:
      –      establishing the conditions for a genuine internal market,
      –      ensuring a high level of consumer protection, and
      –      improving the clarity of EC regulation by recasting the three existing
             Directives on consumer credit (87/102/CE, 90/88/CE and 98/8/CE).
      These objectives are in line with the Lisbon Strategy, as the development of an
      internal market in credit will increase the competitiveness of EU creditors by
      enhancing competition and promoting product innovation.
      Harmonisation of consumer protection provisions in the area of retail financial
      services, coupled with targeted mutual recognition, is a key aspect of the
      Commission strategy for developing the retail financial services market. The latter is
      a natural follow-up to the introduction of a single currency, which removes the
      exchange rate risk between euro-zone countries and renders price comparisons more
      transparent. Transfer costs between euro zone countries have been considerably
      reduced following the introduction of Regulation 2560/2001. This will be
      supplemented by further integration of EU payments systems, making regular
EN                                            2                                              EN
 ---pagebreak---           payments throughout the euro-zone as easy as currently nationally. Cross-border
          loans, requiring period cross-border repayment stand to especially benefit from these
          developments.
   3.     AVAILABLE OPTIONS
          The Consumer Credit Directive 87/102/EC, based on minimum harmonisation,
          resulted in Member States going beyond the Directive’s provisions to a different
          extent. As the relevant provisions are mostly of a mandatory nature, these differences
          in national legislations constitute obstacles to the internal market and dissuaded
          business to offer pan-European products.
          Consequently, a legislative initiative was the only available option to meet the
          objectives.
   4.     IMPACT OF THE DIRECTIVE
   4.1.   Impact on competitiveness
          • The market for credit has a potential to develop; only a small part of it is currently
             cross-border. The considerable overall size of the credit market masks a large
             diversity between markets, where levels of consumer credit vary considerably. For
             example, while the UK market amounts to some €230 billion, this contrasts with
             just €40 billion in a similar sized country, Italy. The average use of credit per
             household varies largely as well1. In some Member States, consumer credit
             accounts for a large part of the households’ available income, in others it is
             relatively small.2 Some markets have little potential to expand further, whereas
             others have still great potential to develop.
          • The possibility to offer credit contracts throughout the EU should result in
             improved efficiencies and economies of scale for banks and a cheaper and wider
             selection of products for customers. Lenders will be able to design pan-EU
             consumer credit products, which do not necessarily have to comply with 25 sets of
             domestic rules.
          • New business opportunities are arising to harness the potential of the internal
             market – technology (in particular the Internet) allow consumers and creditors to
             contract at a distance, new demand for credit may arise from the increase in retail
             sales over the Internet, growth in access to Internet is stimulating remote banking.
   4.2.   Impact on competition
          • Facilitating access to credit markets may stimulate competition in certain markets
             where at present a few players dominate and consumers enjoy reduced access to
   1
        From 942€ in Spain, 3,000€ to 3,500€ in Belgium, Germany or France, up to 9,408€ in Sweden and
        almost 18,000€ in the UK (2002 figures).
   2
        From 7% in Greece, 10% in Spain or France, 16% in Germany and Portugal, up to respectively 26%
        and 28% in Sweden and in the UK (2002 figures).
EN                                                 3                                                   EN
 ---pagebreak---              credit. Stimulating competition should improve efficiency of credit institutions in
             an increasingly global economy.
   4.3.   Impact on consumers
          • Enhanced competition and opening of national markets to foreign creditors will
             lead to lower interest rates for consumers. Prices of consumer credit vary widely
             according to the creditor and from one Member State to another, and consumers
             should be put in a position to take advantage of offers throughout the EU territory.
          • Removal of barriers to competition will lead to a broader range of offers and
             improved products. The level of innovation is already quite high in some Member
             States, however certain credit products available in a given Member State can, in
             many cases, not be sold elsewhere in the EU. It is the interests of consumers to
             have access to all credit products available in the EU, while being guaranteed a
             high level of information and protection.
          • Harmonisation of certain key elements of the consumer credit agreement will
             improve consumer confidence and encourage consumers to buy credit across
             borders in the EU. The current low level of cross-border consumer credit
             agreements is also due to concerns regarding the level of consumer protection in
             foreign Member States.
                                                                              TH
   5.     MAIN CHANGES COMPARED TO THE MODIFIED PROPOSAL OF 28                   OCTOBER 2004
   5.1.   Aim
          Article 1 clarifies that only certain aspects of the area are dealt with in the Directive.
          This is in line with the views expressed by various stakeholders in the consultation
          process.
   5.2.   Definitions
   5.2.1. Overdrafts
          The question of overdrafts needed clarification. In particular, in order to create legal
          certainty, the present modified proposal provides a definition corresponding to the
          usual practice in Member States.
   5.2.2. Total cost of credit
          The definition of the total cost of credit is redrafted in line with the comments of EP
          and industry. The objective is to include only those costs corresponding to services
          concluded with or via the creditor. This definition serves as basis for the calculation
          of the Annual Percentage Rate of Charge (APR). The total lending rate is deleted as
          requested by stakeholders and the EP, as it might have been confusing for
          consumers.
EN                                                4                                                  EN
 ---pagebreak---    5.3.   Scope
   5.3.1. Mortgage credit agreements
          The first modified proposal covered equity releases, while excluding credit
          agreements concluded for housing purposes. However, determining the purpose of a
          loan is very difficult for the creditor, if not impossible, as he has no control on the
          use of the money he lends. In addition, mortgage credit agreements in general are
          very specific instruments with particular features which require to be addressed
          separately, irrespective of the purpose of the loan. Therefore, the Commission has
          excluded equity release from the scope, This corresponds to an EP amendment
          strongly supported by industry.
   5.3.2. Surety agreements, guarantors
          Surety agreements are now excluded from the scope, as the main issue in relation to
          sureties was linked to the question of mortgage credit.
          Guarantors are excluded from the scope as well. The Directive deals with credit
          agreements only; it is more opportune not to deal with specific aspects of contract
          law which are regulated in a larger context in the Member States. Both exclusions
          correspond to EP amendments, and meet concerns put forward by the banking sector.
   5.3.3. Overdrafts
          The EP as well as the European banking industry have argued that overdrafts are
          valued for simplicity and low cost, and therefore, need not to be subject to the full
          range of requirements for credit agreements. They are therefore submitted to a light
          regime only. However, a sufficient level of information is necessary. Overdrafts are
          therefore subject to a limited number of contractual information requirements.
   5.3.4. Agreements above 50 000 €
          Further to discussions with stakeholders, agreements above 50 000 € are excluded as
          they are generally not concluded for consumption purposes but rather for housing
          purposes, and therefore do not require the same type of legislation as the average
          consumer credit. A revision clause regarding the applicable thresholds has been
          introduced so as to allow for an adjustment of the credit thresholds covered by the
          Directive to the economic trends in the EU and the development of the market.
   5.4.   Pre-contractual information
          As advertising is already dealt with by the Directive on Unfair Commercial Practices
          (2005/29/EC), the Commission only proposes a list of mandatory information
          elements to be mentioned in advertising containing financial information on credit.
          General advertising on a given credit service is not concerned, which avoids
          unnecessary burden on businesses.
          Pre-contractual information allows consumers to compare offers. However, various
          stakeholders in the consultation process were concerned that an excess of
          information may be confusing. Some pre-contractual information requirements have
          therefore been deleted in the present modified proposal. Further, following requests
EN                                                5                                               EN
 ---pagebreak---         from the banking sector, the present modified proposal aims at ensuring consistency
        with information requirements in existing EC law.
        The lender is requested to assess the consumer’s creditworthiness on the basis of
        information disclosed by the latter and, where appropriate, consultation of databases.
        Against the background of broad consultation of the banking sector, the Commission
        does not perceive that this gives rise to any additional costs for banks as it
        corresponds to good banking practice.
        The concept of a duty to advise was modified. Contrary to some requests from the
        banking industry, the Commission maintains the concept that a creditor should not
        merely fulfil the pre-contractual information requirements, but should provide
        additional explanations in order to enable the consumer to take a well-informed
        decision. However, in response to a request from the banking sector and some
        Member States, it was clarified that the consumer is always responsible for his final
        decision to conclude a credit agreement. Therefore, the reference to advice is
        specified as a duty to put the consumer in a position to assess the advantages and
        drawbacks of the loan. In addition, Member States have been given more flexibility
        to adapt their implementation law to the situation on their markets.
   5.5. Contractual information
        The provisions on contractual information require mainly information already
        provided at the pre-contractual stage plus information on how to exercise the right of
        withdrawal and the right of early repayment. This is in line with usual good
        professional practice and will not create significant additional costs for creditors.
        In case of a variable rate, the consumer should be informed of significant changes to
        the borrowing rate. However, it is in practice impossible to inform him of every
        change, as in certain cases the rate can change slightly every day. Therefore, the
        present modified proposal foresees that consumers should be informed periodically
        and at least immediately in case of a significant change.
   5.6. Database access
        The obligation to set up national databases has been deleted, since this would go
        beyond the purpose of this Directive. Issues relating to data protection are already
        dealt with in the Data Protection Directive 95/46/EC. Therefore, the Commission
        proposes to guarantee only a mutual access to existing private and public databases
        on a non-discriminatory basis, which does not involve additional costs for the
        industry as the previous provision but, on the contrary, will help lowering a barrier to
        cross-border consumer credit.
   5.7. Right of withdrawal
        The present proposal foresees a possibility for consumers to withdraw from the credit
        agreement within 14 days. This delay allows consumers to shop around after
        conclusion of the agreement and possibly to find a better offer. This provision is
        intended to enhance competition. It corresponds to existing practice in most Member
        States, although the length of the period may vary. The length of the withdrawal
        period corresponds to the Distance Marketing Financial Services Directive
EN                                             6                                                 EN
 ---pagebreak---          (2002/65/EC). As a consequence, at least for consumer credit agreements which are
         also marketed by distance means, it will not involve additional costs for creditors.
   5.8.  Linked transactions
         The present proposal foresees that in case of linked transactions, when the consumer
         has a right to withdraw from the purchase agreement, he also has a right to withdraw
         from the linked credit agreement. This provision aims at avoiding that consumers
         have to keep a credit even when its very purpose has disappeared. However, the right
         to withdraw from the credit does not give a right to withdraw from the purchase
         agreement.
   5.9.  Early repayment
         The present proposal grants the consumer a right to repay his credit earlier than
         initially agreed. However, early repayment has a cost for creditors. Therefore,
         following consultations with stakeholders and Member States, the proposal foresees
         that creditors may charge fair and objective fees to compensate the loss. Since the
         calculation of the compensation should be made on an objective basis, it is expected
         that this provision would only entail marginal costs for creditors.
   5.10. Unfair terms
         The proposal contains two examples of unfair terms specific to credit agreements and
         modifies the annex of Directive 93/13/EEC on unfair terms in consumer contracts.
         The impact on industry, if any, will be very low, as the examples provided are in
         clear contradiction with usual good professional practice.
   5.11. Harmonisation
         In general, both harmonisation and mutual recognition have contributed to EU
         market integration, while ensuring that consumer interests are taken into account.
         The policy mix chosen in a given area invariably depends on the characteristics of
         that area and should be decided on a case-by-case basis. Finding the right mix
         requires an application of the proportionality principle in designing a solution,
         combining where appropriate harmonisation with mutual recognition.
         Against this background, the Commission suggests to maintain the full
         harmonisation approach, with a degree of flexibility for Member States in certain
         areas. Full harmonisation remains the optimal way to establish a genuine single
         market in consumer credit that allows businesses to offer consumer credit across
         borders while at the same time guaranteeing an appropriate high level of consumer
         protection regardless where a credit agreement is entered into throughout the EU.
         The proposal now clarifies that only those elements explicitly dealt with in the text
         are fully harmonised whereas issues such as joint and several liability are left to the
         national legal systems.
         In some cases, the proposal gives leeway to national implementation, mainly due to
         existing heterogeneity as regards national markets or national legislation. This is the
         case, for instance, in the context of early repayment or overrunning. However, it is
         also necessary to ensure that the degree of flexibility provided for national
EN                                              7                                                EN
 ---pagebreak---          implementation within the limits of the Directive does not contribute to raise
         additional barriers to the single market in consumer credit. Therefore, the
         Commission complements its full harmonisation approach with mutual recognition
         for a limited number of issues. This helps to reduce burden on businesses who want
         to offer consumer credit across borders.
         As a result of the proposed provision on mutual recognition, a creditor would only
         have to comply, for an activity in another Member State than the one he is
         established in, with legal requirements of its Member State of origin (or equivalent
         ones) and not with those of the host Member State. In the area of contract law, this
         could lead to another result than forseen by Article 5 of the Rome Convention. In an
         Article 5 situation, which would lead to the application of the law of the country
         where the consumer has his habitual residence, this latter law may establish standards
         that, in relation to the equivalent standards applicable in an incoming creditor’s home
         country, restrict that creditors activity, for instance by being higher (or different) than
         his home country standards. In that case, if areas mentioned in the mutual recognition
         clause are concerned, the host Member State has to ensure that the said standards
         would not apply to the contract. Either the law chosen by the parties, or, in the
         absence of such a choice, the requirements of the creditor’s home country law would
         continue to apply.
         The areas concerned by the mutual recognition clause are explicitly listed in the
         present proposal. As regards Article 15 and 17 on early repayment and overrunning,
         a phasing-in period has been introduced in order to allow Member States to adapt.
   5.12. Examples
         The illustrative examples for calculation of the APR as foreseen in former Annex II
         of the proposal have been deleted in view of the Commission’s overall target of
         better regulation and in order not to over-burden the legislative procedure. If these
         examples are considered as helpful assistance in calculating the APR, they may be
         published separately once the Directive is adopted.
EN                                                8                                                  EN
 ---pagebreak---                                                                 2002/0222(COD)
                                           Amended 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 agreements for consumers amending Council
                                              Directive 93/13/EC
   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 Commission3,
   Having regard to the opinion of the European Economic and Social Committee4,
   Acting in accordance with the procedure laid down in Article 251 of the Treaty5
   Whereas:
   (1)     Council Directive 87/102/EEC of 22 December 1986 for the approximation of the
           laws, regulations and administrative provisions of the Member States concerning
           consumer credit6 lays down rules at Community level concerning consumer
           credit agreements.
   (2)     (1) In 1995, the Commission presented a report7 on the operation of Council Directive
           87/102/EEC of 22 December 1986 on for the approximation of the laws, regulations
           and administrative provisions of the Member States concerning consumer credit,
           following which it and undertook a very broad consultation of the interested parties.
           In 1997, the Commissionit presented a summary report of reactions to the 1995
           report8. A second report9 was produced in 1996 on the operation of Directive
           87/102/EC, as amended by Council Directive 90/88/EEC of 22 February 1990
           amending Directive 87/102/EC on the approximation of the laws, regulations and
           administrative provisions of the Member States concerning consumer credit.
   3
           OJ C , p. .
   4
           OJ C , , p. .
   5
           Opinion.
   6
           OJ L 42, 12.2.1987, p. 48. Directive as last amended by Directive 98/7/EC of the European Parliament
           and of the Council (OJ L 101, 1.4.1998, p. 17).
   7
           COM(95) 117 final.
   8
           COM(97) 465 final.
   9
           COM(96) 79 final.
EN                                                        9                                                     EN
 ---pagebreak---    (3) (2) Thoese reports and consultations revealed substantial differences between the laws
       of the various Member States in the field of credit for natural persons in general and
       consumer credit in particular. An aAnalysis of the national laws 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 legislation envisaged by several Member States and to make provision for a
       harmonised Community framework. use a number of consumer protection
       mechanisms, in addition to the Directive 87/102/EEC, on account of differences in
       the legal or economic situation at national level.
   (4) (3) The de facto and de jure situation resulting from those national differences leads to
       distortions of competition among creditors in the Community and obstacles to the
       internal market where Member States have adopted different mandatory
       provisions more stringent than those foreseen in Directive 87/102/EEC. It restricts
       consumers’ scope for ability to make direct use of the gradually increasing
       availability of cross-border credit obtaining credit in other Member States. Those
       distortions and restrictions in turn affect the scale and nature of the demand for cross-
       border credit, which may in turn 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.
   (5) (4) In recent years the types of credit offered to and used by consumers have evolved
       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, where appropriate.
   (6) In accordance with Article 14(2) of the Treaty, the internal market comprises an
       area without internal frontiers in which the free movement of goods and services
       and freedom of establishment are ensured. The development of a more
       transparent and efficient credit market within the area without internal frontiers
       is vital to promote the development of cross-border activities.
   (7) In order to facilitate the emergence of a well-functioning internal market in
       consumer credit, it is necessary to make provision for a harmonised Community
       framework in a number of core areas. In view of the continuously developing
       market in consumer credit and the increasing mobility of European citizens,
       forward-looking Community legislation which is able to adapt to future forms of
       credit and which allows Member States the appropriate degree of flexibility in
       their implementation should help to establish a modern body of law on consumer
       credit.
EN                                              10                                               EN
 ---pagebreak---    (8)  (5) It is also necessary to promote the creation of a more transparent and efficient
        credit market. It is important that thisthe market should offer a sufficient degree of
        consumer protection such that to ensure consumer confidence. Thus, the free
        movement of credit offers can take place under optimum conditions for both those
        who offer credit and those who require it, with due regard to specific situations in
        the individual Member States.
   (9)  This necessitates a process of maximum Full harmonisation is necessary in order to
        assure all consumers in the Community of a high degree of a high and equivalent
        level of protection of their interests and an equivalent level of information. and in
        order to create a genuine internal market. Member States should therefore not be
        allowed to maintain or introduce national provisions other than those laid down
        in this Directive. However, such restriction should only apply where there are
        provisions harmonised in this Directive. Apart from the provisions harmonised
        by this Directive, Member States should remain free to maintain or introduce
        national legislation. Accordingly, Member States may, for instance, maintain or
        introduce national provisions on joint and several liability of the seller or supplier
        of services and the creditor. Another example of this possibility for Member
        States could be national provisions introducing or maintaining a right of
        withdrawal from the contract of sale of goods or supply of services if the
        consumer exercises his right of withdrawal from the credit agreement. In the case
        of specific credit agreements to which only certain provisions of this Directive are
        applicable, for instance, in the case of overdrafts and certain other specific credit
        agreements, Member States should remain free to regulate, in their national
        legislation, such types of credit agreements regarding other aspects not
        harmonised by the Directive.
   (10) Even in some areas harmonised by this Directive, national implementing rules
        could differ and make it more burdensome for creditors to provide their services
        across borders. It is appropriate in those cases, taking into account the level of
        harmonisation and of consumer protection ensured by this Directive, and with a
        view to a well-functioning internal market, to avoid additional burdens on
        creditors, in particular as regards the necessity to comply with rules that go
        beyond those of the Member State where they are established. Therefore, the
        principle of mutual recognition should apply in certain cases which are
        exhaustively listed in this Directive. In those cases, the principle of mutual
        recognition implies that the rules of the law of the Member State in which the
        consumer has his habitual residence are set aside if its application to a given
        situation constitutes a restriction of the free circulation of services.
EN                                             11                                              EN
 ---pagebreak---    (11) In certain cases where the principle of mutual recognition applies, this Directive
        provides for a transition period. Such a period should allow Member States to
        gain sufficient experience of the functioning of implementing legislation and it
        also should enable economic operators to adapt to a new legal framework
        following the implementation of this Directive before mutual recognition applies.
   (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 intermediary, 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
   (12) Agreements for the provision on a continuing basis of services or for the supply of
        goods of the same kind and in the same quantity, where the consumer pays for
        them for the duration of their provision by means of instalments, may differ
        considerably, in terms of the interests of contractual parties involved, and of
        modalities and performance of the transactions, from credit agreements covered
        by this Directive. Therefore, it should be clarified that they are not considered as
        credit agreements for the purposes of this Directive. An example of such types of
        agreement is an insurance contract where the insurance is paid for via monthly
        instalments.
   (13) (7) Credit agreements covering the granting of credit for the purchase or
        transformation of immovable property secured by real estate should be excluded
        from the scope of this Directive. That 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.
   (8)  In view of the risks to their financial interests, the situation of natural persons who
        stand as guarantors for consumers necessitates specific provisions ensuring a level of
        information and protection comparable to that provided for consumers.
   (9)  Council Directive 84/450/EEC of 10 September 1984 concerning misleading
        advertising and comparative advertising10 is intended to provide protection with regard
        to the mention of a figure, cost or rate in advertising or advertising offers relating to a
        credit agreement. It 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
   10   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).
EN                                                   12                                                    EN
 ---pagebreak---    (14) Consumers should be protected against unfair or misleading practices, in
        particular with respect to the disclosure of information by the creditor, in line
        with Directive 2005/29/EC of 11 May 2005 of the Council and of European
        Parliament concerning unfair business-to-consumer commercial practices in the
        internal market and amending Directives 84/450/EEC, 97/7/EC and 98/27/EC
        (the Unfair Commercial Practices Directive11). However, this Directive should
        contain specific provisions on advertising concerning credit agreements as well as
        certain elements of standard information consumers should be provided with in
        order to enable them, in particular, to compare different offers.
   (10) In order to ensure real consumer protection, it 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 premises12.
   (11) The provisions of this Directive must apply without prejudice to Directive 95/46/EC of
        the European 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 data13. 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) (14) So In order that consumers can make their decisions in full knowledge of the
        facts, they must should receive adequate information, prior to the conclusion of the
        credit agreement, on the conditions and cost of the credit and on their obligations. To
        ensure absolutethe fullest possible 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
        rateand determined throughout the Community in the same way. As the annual
        percentage rate of charge can at this stage only be indicated through an example,
        such example should be representative. Therefore, it should correspond, for
        instance, to the average duration and total amount of credit granted for the type
        of credit agreement under consideration and, if applicable, to the goods
        purchased. When determining the representative example, the frequency of
        certain types of credit agreement in a specific market should also be taken into
        account.
   (16) Consumers should be informed of any additional costs that are compulsory for
        obtaining the credit before the conclusion of the credit agreement. Even if the
        amount of such costs cannot be determined in advance, consumers should receive
        adequate information both in advertising and at a pre-contractual stage.
   (17) For specific types of credit agreements, however, it is appropriate, in order to
        ensure at the same time an adequate level of consumer protection without putting
        an excessive burden on creditors or, where applicable, credit intermediaries, to
   11
        OJ L 149, 11.6.2005, p. 22.
   12   OJ L 372, 31.12.1985, p. 31.
   13   OJ L 281, 23.11.1995, p. 31.
EN                                               13                                               EN
 ---pagebreak---         restrict the pre-contractual information requirements of this Directive, taking
        into account the specific character of such types of agreements.
   (18) The consumer needs to be informed comprehensively before he concludes the
        credit agreement regardless of whether or not a credit intermediary is involved in
        the marketing of the credit. Therefore, in general, the pre-contractual
        information requirements should also apply when a credit intermediary is
        involved. However, if suppliers of goods and services act as credit intermediaries
        in an ancillary capacity, it is not appropriate to also burden them with the pre-
        contractual information requirements as laid down in this Directive. Therefore,
        the pre-contractual information requirements should not apply to such credit
        intermediaries. Suppliers of goods and services may be considered, for example,
        as acting as credit intermediaries in an ancillary capacity if their activity as credit
        intermediaries does not amount to a substantial part of their turnover. In those
        cases, full pre-contractual information of the consumer is still ensured because it
        has to be provided by the creditor.
   (19) Consumers should also act with prudence and respect their contractual
        obligations.
   (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 the creditor, 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.
   (20) Despite the pre-contractual information to be provided, the consumer may still
        need additional assistance in order to decide which credit agreement, within the
        range of products proposed, is the most appropriate for his needs and financial
        situation. Therefore, Member States should ensure that creditors, and where
        applicable, credit intermediaries, provide such assistance. Where appropriate,
        the relevant pre-contractual information, as well as the advantages and the
        disadvantages associated with the products proposed, should be explained to the
        consumer in a personalised manner, in the light of the possible complexity of the
        relevant credit agreement.
EN                                               14                                                 EN
 ---pagebreak---    (21) (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 among
        creditors, it must should be ensured that persons and businessescreditors have access
        to theprivate or public centraldatabases concerning consumers in a of another
        Member State where they are not established under the samenon-discriminatory
        conditions compared to as persons and businessescreditors in that Member State,
        either directly or through the central database of their own Member State.
   (22) In order to enable the consumer to know his rights and obligations under the
        credit agreement, it should contain all necessary information in a clear and
        concise manner.
   (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 for the consumer or guarantor. Any other processing or use of personal
        data obtained 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.
   (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
        specifying certain conditions which apply to all the forms of credit covered by the
        Directive. The credit agreement must confirm and add to the information provided
        before the conclusion of the agreement, where appropriate with the help of an
        amortisation table and details of the charges for defaulting.
   (23) In order to ensure full transparency the consumer should be provided with
        information on the borrowing rate, both at a pre-contractual stage and when
        concluding the credit agreement. During the contractual relationship, the
        consumer further should be informed of significant changes to the borrowing
        rate.
   (24) (18) In order to approximate the procedures for exercising the right of withdrawal in
        similar areas, it is necessary to 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 2002/65/EC of the European Parliament and of the
        Council of 23 September 2002{…} onconcerning the distance marketing of
        consumer financial services and amending Council Directives 90/619/EEC, 97/7/EC
        and 98/27/EC14. Before exercising the right of withdrawal, the consumer may
        inform the creditor of his intention to withdraw from the credit agreement, in
        order to allow for re-negotiation of that agreement.
   14
        OJ L 271, 9.10.2002, p. 16.
EN                                              15                                                EN
 ---pagebreak---    (25) In the case of linked agreements a relationship of interdependence exists between
        the purchase of goods or services and the credit agreement concluded for this
        purpose. Therefore, the exercise of the right of withdrawal in respect of the
        purchase agreement should allow the consumer to withdraw also from the credit
        agreement. In addition, consumers should be, under certain conditions, allowed
        to pursue remedies against the creditor in case of difficulties related to the
        purchase agreement. However, the non-compliance with such conditions should
        not deprive consumers of their rights granted by national provisions applying
        joint and several liability of the seller or supplier of services and the creditor.
   (26) (21) The consumer should have the right to discharge his obligations before the due
        date in the credit agreement. In the case of early repayment, either in part or in full,
        the creditor mustshould be entitled to claim only a fair and objective indemnity. The
        objective indemnity should compensate the creditor for the costs directly linked
        to the early repayment and should take into account the interests of both
        contractual parties.only, and provided that such repayment results in a corresponding
        financial loss for the creditor.
   (27) (23) The transfer of the creditor’s rights under a credit agreement mustshould 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. The consumer should also be properly informed when the
        credit agreement is assigned to a third party. However, where the assignment is
        effected for securitisation purposes only and where the initial creditor is, in
        agreement with the assignee, acting as a creditor vis-à-vis the consumer, the
        consumer does not have an important interest to be informed about the
        assignment. Therefore, a requirement at EU level to inform the consumer about
        the assignment in such cases would be excessive, but Member States should
        remain free to maintain or introduce such requirements in their national
        legislation.
EN                                               16                                              EN
 ---pagebreak---    (28) (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 theensure the comparability of
        information relating to annual percentage rates of charge throughout the
        Community. Despite the uniform mathematical formula for calculating the
        annual percentage rate of charge provided for in Directive 87/102/EEC, as
        amended by Directive 98/7/EC, the annual percentage rate of charge is not yet
        fully comparable throughout the Community. In individual Member States
        different cost factors are taken into account in the calculation thereof. The
        Directive should therefore clearly define the total cost of a credit to the consumer.
        The costs associated with an insurance should only be included in the calculation
        of the annual percentage rate of charge if the insurance is compulsory in order to
        obtain the credit or the advertised interest rate and is concluded with or via
        either the creditor or the credit intermediary. 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.
   (29) (17) In view of the specific nature of the terms used in credit and surety agreements,
        clarification is needed as to which terms are should be regarded as unfair without
        prejudice to the application to the agreement as a whole in the framework of Council
        Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts15. That
        Directive should therefore be amended accordingly.
   (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
   (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
   (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.
   15
        OJ L 95, 21.4.1993, p. 29.
EN                                               17                                               EN
 ---pagebreak---    (30) (25) In order to ensdure market transparency and stability, and pending further
        harmonisation, Member States need to adoptshould ensure that appropriate
        measures for the registration of persons offering credit or acting as regulation or
        supervision of creditors and credit intermediaries are in placewith 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.
   (26) In order to ensure permanent protection of the interests of the consumer, credit or
        surety agreements should not derogate, to the detriment of the consumer or guarantor,
        from the provisions implementing or corresponding to this Directive.
   (31) (27) This Directive respects fundamental rights and observes the principles recognised
        in particular by the Charter of Fundamental Rights of the European Union. In
        particular, it aims this Directive seeks to ensure full compliance with respect for 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 of Fundamental Rights of the European
        Union.
   (32) (28) Since the objective of the action to be takenthis Directive, namely to establish
        common rules allowing the harmonisation offor certain aspects of the laws,
        regulations and administrative provisions of the Member States concerning consumer
        credit, cannot be adequately sufficiently achieved by the Member States, and can
        therefore be better achieved more effectively at Community level, the Community can
        take action may adopt measures in accordance with the principle of subsidiarity
        referred to as set out in Article 5 of the Treaty. In accordance with the principle of
        proportionality, as referred to in the said set out in that Article, this Directive does not
        go beyond what is necessary in order to achieve theose objectives.
   (33) (29) The Member States must should lay down rules on penalties for applicable to
        infringements of the provisions of this Directive and must ensure that they are
        implemented. enforced. Theose penalties must be effective, proportionate and
        dissuasiveconstitute a deterrent.
   (34) (30) Accordingly, taking account of the number of amendments that need to be
        made to Directive 87/102/EEC due to the evolution of the consumer credit sector
        and in the interests of clarity of Community legislation, that Directive should be It
        is therefore necessary to repealed and replaced by this Directive 87/102/EEC,
   HAVE ADOPTED THIS DIRECTIVE:
EN                                               18                                                  EN
 ---pagebreak---                                             CHAPTER I
                                  AIM, DEFINITIONS AND SCOPE
                                               Article 1
                                         Aim Subject matter
   The aimpurpose of this Directive is to harmonise certain aspects of the laws, regulations and
   administrative procedures of the Member States concerning agreements covering credit for
   granted to consumers and surety agreements consumers.
                                              Article 3 2
                                                Scope
   1.       This Directive appliesshall apply to credit agreements and surety 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 another comparable surety commonly used in a Member
                  Statefor this purpose;
            (b)   credit agreements involving a total amount of credit exceeding EUR 50
                  000;
            (c)   hiring agreements, except where they stipulate that the title is to pass to the
                  hirer eventually;which exclude the passing of the title to the hirer or to
                  persons entitled by him;
            (d)   leasing agreements which do not create any obligation to purchase the
                  object of the agreement;
            (e)   credit agreements under the terms of which the consumer is required to repay
                  the credit by means of instalments or in a single payment within a period not
                  exceeding three months, without the payment of interest or any other charges;
            (f)   credit agreements which meet the following conditions:i)are granted by an
                  employer to his employees as a secondary activity free of interest or they
                  are granted by the creditor as a secondary activity, i.e. outside the sphere of his
                  principal commercial or professional activity,         ii)     they are granted at
                  annual percentage rates of charge lower than those prevailing on the market,
            iii)  theytheyand which are not offered to the public generally;
EN                                                19                                                  EN
 ---pagebreak---        (g)    credit agreements concluded with investment firms within the meaning of as
              defined in point (2) of Article 1(2) of Council Directive 93/22/EEC16 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;
       (h)    credit agreements which are the outcome of a settlement reached in court
              or before another statutory authority;
       (i)    credit agreements which relate to the deferred payment, free of charge, of
              an existing debt;
       (j)    credit agreements upon the conclusion of which the consumer is requested
              to deposit an item as security in the creditor’s safe-keeping and where the
              liability of the consumer is strictly limited to that pledged item;
       (k)    credit agreements which relate to loans granted to a restricted public, at
              lower interest rates than those prevailing on the market or free of interest,
              and where the creditor is fulfilling a statutory duty with a general interest
              purpose.
   3.  In the case of credit agreements on the basis of which credit is granted in the
       form of an overdraft facility, only Articles 1 to 4, 6, 7, and 8, Article 9(1), Article
       9(2)(a) to (d), (h) and (o), Article 9(3), Articles 10 and 11, Article 17 (1), and
       Articles 18 to 29 shall apply.
       The information to be included in those credit agreements shall also contain
       information on the charges applicable from the time such credit agreements are
       concluded, and the conditions under which those charges may be amended.
   4.  In the case of the following credit agreements, only Articles 1 to 4, 6, 7 and 8,
       Article 9 (1), Article 9(2) (a) to (g) and (j), Article 9(3), and Articles 10, 12 and
       17 to 29 shall apply:
       (a)    credit agreements involving a total amount of credit not exceeding EUR
              300;
       (b)    credit agreements concluded by non-profit associations of consumers
              which manage the savings of and provide sources of credits to their
              members, where:
              (i)    the ultimate responsibility lies with volunteers who provide credit on
                     the basis of an annual percentage rate of charge which is subject to a
                     ceiling laid down by national law; and
              (ii)   membership of such associations is restricted to persons residing or
                     employed in a particular district or employees and retired employees
                     of a particular employer;
   16
      OJ L 141, 11.6.1993, p. 27.
EN                                            20                                               EN
 ---pagebreak---             (c)   credit agreements which provide for arrangements to be agreed by the
                  creditor and the consumer in respect of deferred payment or repayment
                  methods, where the consumer is already in default on the initial credit
                  agreement] where:
                  (i)    such arrangements would be likely to avert the possibility of legal
                         proceedings concerning such default; and
                  (ii)   the consumer would not thereby be subject to less favourable terms
                         compared to the initial credit agreement.
            However, if the credit agreement falls within the scope of paragraph 3, only the
            provisions provided for in that paragraph shall apply.
                                               Article 2 3
                                              Definitions
   For the purpose of this Directive, the following definitions shall apply:
   (a)      “consumer” means a natural person who, in transactions covered by this Directive, is
            acting for purposes which can be regarded as are outside his trade, business or
            profession;
   (b)      “creditor” means a natural or legal person who grants or promises to grant credit in
            the course of his trade, business or profession;
   (c)      “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; except for aAgreements for the provision on a continuing
            basis of services (private or public), or for the supply of goods of the same kind
            and in the same quantity, where the consumer has the right to pays for them for
            such services or goods for the duration of their provision by means of instalments,
            are not deemed to be credit agreements for the purposes of this directive;
   (d)      “overdraft facility” means a credit agreement whereby a creditor grants to a
            consumer the possibility to dispose of funds in his current account which exceed
            the current balance in that account and where the amount of credit has to be
            repaid within three months or on demand;
   (e)      “credit intermediary” means a natural or legal person who on behalf of the creditor
            and for a fee, which may take a pecuniary form or any other agreed form of
            financial consideration, habitually:
            (i)   acts as an intermediary by presenting presents or offering offers credit
                  agreements;
            (ii)  undertaking undertakes other preparatory work for creditsuch agreements
                  other than that referred to in (i); or
            (iii) concluding concludes credit such agreements; the fee may take the form or
                  any other agreed form of financial consideration;
EN                                                 21                                            EN
 ---pagebreak---    (e) “surety agreement” means an ancillary agreement concluded by a guarantor and
       guaranteeing or promising to guarantee the fulfilment of a credit agreement granted
       to a consumer and covered by this directive;any form of credit granted to natural or
       legal persons;
   (f) “guarantor” means a consumer concluding a surety agreement;
   (f) “total cost of the credit to the consumer” means all the costs, including borrowing
       interest, indemnities,commissions and any kind of fees.taxes and any other kind of
       charge which the consumer has to pay for the creditin connection with the credit
       agreement in conformity with the terms thereof, and which are known to the
       creditor; costs relating to ancillary services relating to the credit agreement, in
       particular insurance premiums, are included if the conclusion of the service
       contract is compulsory for obtaining the credit or the advertised interest rate,
       and is concluded with the creditor or with a third party, if the creditor, or,
       where applicable, the credit intermediary have concluded it on behalf of this
       third party or have presented the offer or the service as such to the consumer;
       costs payable by the consumer on conclusion of the credit agreement to persons
       other than the creditor or the credit intermediary, in particular a notary or tax
       authorities, are excluded;
   (g) “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) “sums levied by the creditor” means all the mandatory costs associated with the
       credit agreement and paid to the creditor by the consumer;
   (j) “total lending rate” means the sums levied by the creditor expressed as an annual
       percentage of the total amount of credit;
   (h) “borrowing rate” means the interest rate expressed as a fixed or variable periodic
       percentage applied for a given period to the amount of credit drawn dowm
       drawdowns under the credit agreement;
   (h) “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;
   (i) “drawdown” means an amount of credit made available to the consumer in the form
       of a deferred payment, loan or other similar financial accommodation under a credit
       agreement;
   (j) “total amount of credit” means the ceiling or the sum of all drawdowns that are likely
       to be agreed;
   (k) “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 reproduction of the information stored;
EN                                           22                                               EN
 ---pagebreak---    (p) “third party providing constitution of capital” means any natural or legal person,
       other than the creditor or consumer, who gives the consumer or, where applicable,
       the creditor an undertaking, through an agreement appended to the credit agreement,
       to constitute the capital to be repaid under such credit agreement.
   (l) “linked credit agreement” means a credit agreement where
       (i)   the credit in question serves exclusively to finance an agreement
             concerning the supply of goods or the provision of a service and
       (ii)  those two agreements form from an objective point of view a commercial
             unit; a commercial unit is involved where the supplier or service provider
             himself finances the credit for the consumer or, if it is financed by a third
             party, if the creditor uses the services of the supplier or service provider in
             connection with the conclusion, or preparation, of the credit agreement, or
             if the credit agreement makes reference to the specific goods or services to
             be financed with the credit.
EN                                             23                                            EN
 ---pagebreak---                                             CHAPTER II
   INFORMATION AND PRACTICES PRELIMINARY TO THE FORMATIONCONCLUSION
                                  OF THE CREDIT AGREEMENT
                                               Article 4
                                              Advertising
   Without prejudice to Council Directive 84/450/EEC, any advertising 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 charge, shall be provided in a
   clear and comprehensible manner, with due regard, in particular, to the principles of good
   faith in commercial transactions. The commercial purpose of this information must be made
   clear
                                               Article 4
                                Standard information for advertising
   1.        Any advertising concerning credit agreements indicating an interest rate or any
             figures relating to the cost of the credit to the consumer shall include standard
             information in accordance with this Article (‘the standard information’).
   2         The standard information shall include, in the following order, and in a clear,
             concise and prominent way through a representative example:
             (a)   the total amount of credit;
             (b)   the annual percentage rate of charge;
             (c)   the duration of the credit agreement;
             (d)   the amount, number and frequency of payments to be made; and
             (e)   any kind of fees in connection with the credit agreement in conformity
                   with the terms thereof and which are known to the creditor.
   3.        Where credit terms are not available to the general public, the annual
             percentage rate of charge shall be stated by means of at least two representative
             examples.
   4.        Where a lower interest rate is offered for a limited duration at the beginning of
             the credit agreement, the advertisement shall contain the annual percentage
             rate of charge calculated on the total duration of the credit agreement.
   5.        Where the conclusion of a contract regarding an ancillary service relating to the
             credit agreement, in particular an insurance, is compulsory for obtaining the
             credit or the advertised interest rate, and its cost cannot be determined in
             advance, the obligation to take out this service shall also be mentioned in a
             clear, concise and prominent way, together with the annual percentage rate of
             charge.
EN                                                24                                               EN
 ---pagebreak---    6.      This Article shall be without prejudice to Directive 2005/29/EC of 11 May 2005
                                               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 5
    Exchange of information in advance and duty to provide advicePre-contractual information
   1.      Without prejudice to the application of Directive 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 is adequate, relevant and not excessive, with a view to assessing their
           financial situation and their ability to repay.The consumer and guarantor shall reply
           accurately and in full to any such request for informationThe creditor and, where
           applicable, the credit intermediary shall adhere to the principle of responsible
           lending. Therefore, the creditor and, where applicable, the credit intermediary,
           shall comply with their obligations concerning the provision of pre-contractual
           information and the requirement for the creditor to assess the consumer’s
           creditworthiness on the basis of accurate information provided by the latter,
           and, where appropriate, on the basis of a consultation of the relevant database.
           Where the credit agreement allows the creditor to change the total amount of
           credit after the date of conclusion of the credit agreement, the creditor shall
           update the financial information at his disposal concerning the consumer and
           shall assess the consumer’s creditworthiness before any significant increase in
           the total amount of credit.
   2.      In good time before the consumer is bound by any credit agreement or offer,
           Tthe creditor and, where applicable, the credit intermediary shall provide the
           consumer , on paper or on another durable medium, with the necessary and
           essential information needed for the conclusion of the credit agreement under
           consideration..the consumer with all the exact and complete information needed in
           respect of the credit agreement under consideration. The consumer shall receive this
           information on paper or on another durable medium before the conclusion of the
           credit agreement.
           Without prejudice to Article 5 of Directive .../.../EC [on the distance marketing of
           financial services to consumers and amending Council Directives 90/619/EEC,
           97/7/EC and 98/27/EC], the That information provided must shall include a clear
           concise and concise clear description of the productits advantages, and any
           drawbacks. In particular tThe information must shall refer to:
           (a)   the duration of the credit agreement;
EN                                                25                                              EN
 ---pagebreak---    (b) the total amount of credit and the conditions governing the drawdown of the
       credit;
   (c) where applicable, the borrowing rate, the conditions governing the application
       of theis borrowing rate and, where available, any index or reference rate
       applicable to the initial borrowing rate, as well as the periods, conditions and
       procedure for varying the borrowing rate;
   (d) the annual percentage rate of charge and the total lending rateand the total
       cost of the credit to the consumer, by means of a representative example
       mentioning all the financial data and assumptions used for calculating theis
       said rates;
   (e) the amount, number and frequency of payments to be made, where possible
       set out in a payment schedule;
   (f) the recurrent and non-recurrent charges, 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 where applicable, the costs of maintaining an account
       recording both payment transactions and drawdowns, the costs of using a
       means of payment for both payment transactions and drawdowns, and
       other costs relating to payment transactions;
   (f) where applicable, the cash price of the financed goods or services, the down
       payment due and the residual value;
   (g) costs payable by the consumer on conclusion of the credit agreement to
       persons other than the creditor or the credit intermediary, in particular a
       notary or tax authorities;
   (h) the obligation to take out an ancillary service relating to the credit
       agreement, in particular an insurance, where the conclusion of a contract
       regarding this service is compulsory for obtaining the credit or the
       advertised interest rate, and its cost cannot be determined in advance,
   (i) the interest in the case of overdue payments as applicable at the time when
       the information according to this provision is given and the arrangements
       for their adjustment, and the charges for defaulting;
   (j) the sureties and insurance required;
   (k) the existence or absence of a right of withdrawal, the period during which
       thate right of withdrawal may be exercised;
   (l) the right of early repayment, and, where applicable, the costs arising
       therefrom, indicating the amount or the calculation method;
   (m) the right to be informed of the result of a database consultation for the
       assessment of the creditworthiness in accordance with Article 8(2);
EN                                     26                                               EN
 ---pagebreak---       However, in the cases of voice telephony communications, as referred to in
      Article 3(3) of Directive 2002/65/EC, theis pre-contractual information mustshall
      include at least the items referred to in points (b), (c), and (e), and g) of this
      paragraph and the annual percentage rate of charge by means of a representative
      example and the total cost of the credit to the consumer.
      The obligation to provide pre-contractual information to the consumer in
      accordance with this paragraph may also be discharged by supplying a copy of
      the draft credit agreement including the information in accordance with Article
      9.
   3. The requirements provided for in paragraph 2 shall be fulfilled immediately
      after the conclusion of the credit agreement, if that agreement has been
      concluded at the consumer’s request using a means of distance communication
      which does not enable providing the information in accordance with paragraph
      2.
   4. In the case of a credit agreement where 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 or in an ancillary agreement, the pre-
      contractual information required under paragraph 2 shall include a clear and
      concise statement that such credit agreements do not provide for a guarantee of
      repayment of the total amount of credit drawn down under the credit
      agreement, unless such a guarantee is given.
   5. Member States shall ensure that creditors and, where applicable, credit
      intermediaries provide adequate explanations to the consumer, in order to put
      the consumer in a position to assess whether the proposed credit agreement is
      adapted to his needs and to his financial situation, where appropriate by
      explaining the pre-contractual information to be provided in accordance with
      paragraph 2 as well as the advantages and the disadvantages associated with the
      products proposed. Member States may adapt the manner by and extent to
      which this assistance is given, as well as by whom it is given, to the particular
      circumstances of the situation in which the credit agreement is offered.
      The creditor or, where applicable, the credit intermediary 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.
   4. Paragraphs 1, 2 and 3 do not apply to suppliers of goods or services acting as credit
      intermediaries in an ancillary capacity.
EN                                          27                                                EN
 ---pagebreak---                                               Article 6
   Pre-contractual information requirements for credit agreements in the form of an overdraft
                        facility and for certain specific credit agreements
   1.      In good time before a consumer is bound by a credit agreement or any offer
           concerning a credit agreement within the meaning of Article 2(3) or Article 2(4),
           the creditor and, where applicable, the credit intermediary shall provide, on
           paper or on another durable medium, the following information:
           (a)   the total amount of credit;
           (b)   the borrowing rate;
           (c)   the annual percentage rate of charge by means of a representative
                 example mentioning all the financial data and assumptions used for
                 calculating that rate;
           (d)   the charges applicable from the time the credit agreement is concluded,
                 and the conditions under which those charges may be amended; and
           (e)   the conditions and procedure for terminating the credit agreement.
           In the case of credit agreements within the meaning of Article 2(3), the
           information provided to the consumer in accordance with point (e) of this
           paragraph shall include, where applicable, an indication that the consumer may
           be requested to repay the amount of credit in full on demand at any time.
   2.      In the case of credit agreements within the meaning of Article 2(4), the
           information provided to the consumer in accordance with paragraph 1 of this
           Article shall also include:
           (a)   the duration of the credit agreement; and
           (b)   the amount, number and frequency of payments to be made.
           However, if the credit agreement falls within the scope of Article 2(3), only the
           provisions referred to in Article 2(3) shall apply .
   3.      The pre-contractual information to be provided to the consumer in accordance
           with this Article may also be discharged by supplying a copy of the draft credit
           agreement including the information in accordance with Article 9 insofar as this
           Article applies.
   4.      The requirements provided for in this Article shall be fulfilled immediately after
           the conclusion of the credit agreement, if that agreement has been concluded at
           the consumer’s request using a means of distance communication which does
           not enable providing the information in accordance with this Article.
                                              Article 7
                                            Exemptions
EN                                               28                                           EN
 ---pagebreak---    Paragraphs 1, 2 and 3Articles 5 and 6 of this Directive shalldo not apply to suppliers of
   goods or services acting as credit intermediaries in an ancillary capacity.
EN                                                29                                         EN
 ---pagebreak---                                              CHAPTER III
                         PROTECTION OF PRIVACYDATABASE ACCESS
                                               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 dDatabase access
   1.       Without prejudice to the application of Directive 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 the consumer or guarantor, subject to the restrictions
            referred to in Article 9. The consumer and, where appropriate, the guarantor shall, if
            they so request, be informed of the result of any consultation immediately and
            without chargeIn the case of cross-border credit, each Member State shall ensure
            access for creditors from other Member States to databases in that Member
            State under non-discriminatory conditions.
   2.       Access to the central database in another Member State 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 StateThe consumer, if he so requests,
            shall be informed of the result of any database consultation immediately and
            without charge.
   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.
EN                                                30                                               EN
 ---pagebreak---                                           CHAPTER IV
   FORMATION OFINFORMATION AND RIGHTS CONCERNING CREDIT AGREEMENTS
                                              Article 9
                                        Responsible lending
   Where the creditor concludes a credit agreement or surety agreement or increases the total
   amount of credit or the amount guaranteed, he is assumed to have previously assessed, by any
   means at his disposal, whether the consumer and, where appropriate, the guarantor can
   reasonably be expected to discharge their obligations under the agreement.
                                            Article 10 9
                Information that must be included in credit and surety agreements
   1.      Credit agreements and surety agreements shall be drawn up on paper or on another
           durable medium.
           All the contracting parties including the guarantor and the credit intermediary, shall
           receive a copy of the credit agreement.The guarantor shall receive a copy of the
           surety agreement.
           Credit aAgreements shall contain information regarding access to mention the
           existence or non-existence of out-of-court dispute resolution complaint and redress
           procedures and shall specify accessible to consumers who are party to a contract
           and, if such procedures exist, the formalities for gaining access to themto be
           followed if a creditor or credit intermediary makes use of such procedures.
   2.      The credit agreement shall include in a clear and concise manner:
           (a)   the names and addresses of the contracting parties as well as, if applicable, the
                 name and address of the credit intermediary involved;
           (b)   the duration of the credit agreement;
           (c)   the total amount of credit and the conditions governing the drawdown of
                 the credit;
           (d)   the borrowing rate, the conditions governing the application of that rate
                 and, where available, any index, or reference rate applicable to the initial
                 borrowing rate, as well as the periods, conditions and procedures for
                 varying the borrowing rate;
           (e)   the annual percentage rate of charge and the total cost of the credit to the
                 consumer, calculated at the time the credit agreement is concluded; all the
                 financial data and assumptions used for calculating that rate shall be
                 mentioned;
EN                                               31                                                EN
 ---pagebreak---    (f) the amount, number and frequency of payments to be made, where
       possible set out in a payment schedule;
   (g) where capital amortisation of a credit agreement with a fixed duration and
       interest rate is involved, a statement of account in the form of an amortisation
       table, the payments owing, and the periods and conditions relating to the
       payment of these such amounts; the table 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;
   (h) if charges and interest are to be paid without capital amortisation, a statement
       showing the periods and conditions for the payment of the borrowing interest
       and of the associated recurrent and non-recurrent charges;
   (i) where applicable, the costs of maintaining an account recording both
       payment transactions and drawdowns, the costs of using a means of
       payment for both payment transactions and drawdowns, and other costs
       relating to payment transactions;
   (j) a statement of the costs, indicating their purpose and amounts, cost
       components that which are not included in the calculation of the annual
       percentage rate of charge but which are known to the creditor or the credit
       intermediary and are to be paid by the consumer,under certain circumstances,
       namely the interest in case of overdue payments as applicable at the time of
       conclusion of the agreement and the arrangements for their adjustment
       commitment fee, penalties, the charges or interests on arrears relating to an
       overrunning of unauthorised drawdowns in excess of the total amount of
       credit, and the charges for defaulting, plus a list setting out the circumstances;
   (k) the sureties and insurance required;
   (l) the existence or absence of a right of withdrawal, the period during which
       that right of withdrawal may be exercised, and the procedure to exercise
       that right;
   (m) information concerning the rights resulting from Article 14 as well as the
       conditions for the exercise of these rights;
   (n) the right of entitlement to early repayment, as well as the procedure to be
       applied by the consumer in order to exercise this right, the procedure for
       early repayment, and, where applicable, the costs arising therefrom,
       indicating the amount or the calculation method;
   (o) the procedure to be followed to exercise the right of termination of the
       credit agreement;
   (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;
   (p) where applicable, the goods or services being financed;
EN                                       32                                               EN
 ---pagebreak---       (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 withdrawal.
      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.
      If, in the case referred to in c), a new drawdown is not 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).
   3. In the case of a credit agreement where 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 or in an ancillary agreement, the pre-
      contractual information required under paragraph 2 shall include a clear and
      concise statement that such credit agreements do not provide for a guarantee of
      repayment of the total amount of credit drawndown under the credit
      agreement, unless such a guarantee is given.
                                         Article 14 10
                            Information on the 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 of reference
      rate.
   4. The consumer shall be periodically informed of any changes to the borrowing rate,
      on paper or on another durable medium.
EN                                            33                                            EN
 ---pagebreak---    This information must include the new annual percentage rate of charge the creditor’s new
   total lending rate and the new amortisation table. The calculation of the new annual
   percentage rate of charge shall be based on Article 12 (3). Where the change to that rate is
   significant, the consumer shall be informed immediately following the date of such
   change.
                                             Article 21 11
    Credit agreement in the form of an advance on a current account or a debit accountoverdraft
                                                facility
   Where a credit agreement covers credit in the form of an advance on a current account or
   debit accountoverdraft facility, the consumer shall be regularly informed of his debit
   situationby means of a statement of account, on paper or on another durable medium,
   containing the following information:
   (a)      the precise period to which the statement of account relates;
   (b)      the amounts and dates of drawdowns;
   (c)      where applicable, the outstanding balance due from the previous statement, and the
            date thereof;
   (d)      where applicable, the new balance outstanding;
   (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;
   (g)      where applicable, the minimum amount to be paid;
   (h)      where applicable, the new balance outstanding;
   (j)      the new total amount outstanding, including any interest on arrears or penalties.
   In addition, the consumer shall be notified on paper or any durable medium during the
   course of the agreement of changes in the borrowing rate or in payable costs
   immediately following the date of such change.
                                             Article 22 12
                       Open-end credit agreements and long term agreements
   1.       Either party may terminateeffect standard termination of 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 legislation regarding proof.
EN                                                34                                            EN
 ---pagebreak---    2. The creditor may terminate without prior notice the consumers’ right to draw
      down on an open-end credit agreement. The creditor shall inform the consumer
      of such decision on paper or on another durable medium without delay.
   3. Fixed-term agreements of more than three years may not be renewed without
      the explicit prior approval of the consumer
                                       Article 11 13
                                   Right of withdrawal
   1. The consumer shall have a period of fourteen calendar days to withdraw his
      acceptance offrom the credit agreement without giving any reason.
      Thatis period of withdrawal shall begin:
      (a)   either from the day of the conclusion of the credit agreement, or
      (b)   from the day on which the consumer receives the contractual terms and
            conditions and information in accordance with Article 9 (2), if that day is
            later than the date referred to in point (a). on the day a copy of the credit
            agreement concluded is transmitted to the consumer.
   2. Before the consumer exercises his right of withdrawal, he may inform the
      creditor of his intention to withdraw from the credit agreement. This
      information shall be given within a period of seven calendar days after the
      beginning of the period of withdrawal according to paragraph 1.
   3. If the consumer exercises his right of withdrawal, as provided for in paragraph
      1 of this Article, he shall, before the expiry of the deadline referred to in
      paragraph 1, notify this to the creditor following the information given by the
      creditor in accordance with Article 9 (2)(l) by means which can be proved in
      accordance with national law. 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 notification, if it is which
      must be on paper or on another durable medium that is available and accessible to the
      creditor, is dispatched before the deadline expires.
EN                                          35                                                EN
 ---pagebreak---    4.  Following the exercise of the right of withdrawal in accordance with paragraph 2,
       the creditor shall notify the consumer, on paper or another durable medium, of
       the amount of money to be repaid including the 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 payinterest due for the period during
       which credit was drawndown.
       The interest due shall be calculated on the basis of the agreed annual
       percentageborrowing rateof charge. No other indemnity may be claimed in
       connection with exercising the right of withdrawal.
       The consumer shall pay to the creditor that amount of money notified to him
       under this paragraph. Any down-payment effected by the consumer under the
       credit agreement shall be repaid to the consumer without delay.
   5.  Paragraphs 1, 2 and 3 to 4 of this Article shall not apply to credit agreements:
       (a)    concluded through services of an official, provided that the official
              confirms that the consumer is guaranteed the rights under Article 5(2) and
              9(2)credit agreements secured by a mortgage or similar surety, credit
              agreements for housing
       or
       (b)    credit agreements cancelled under:
              (i)    Article 6 of Directive 2002/65/EC[on the distance marketing of financial
                     services to consumers and amending Council Directives 90/619/EC,
                     97/7/EC and 98/27/EC];
              (ii)   Article 6 (4) of Directive 97/7/EC of the European Parliament and of the
                     Council17;
              (iii) Article 7 of Directive 94/47/EC of the European Parliament and of the
                     Council18.
                                           Article 14
                                      Linked transactions.
   1.  Where the consumer has exercised a right of withdrawal concerning a contract
       for the supply of goods or services by a trader, he shall no longer be bound by a
       linked credit agreement.
   2.  Where:
       (a)    in order to buy goods or obtain services the consumer enters into a credit
   17
      OJ L 144, 4.6.1997, p. 19.
   18
      OJ L 280, 29.10.1994, p. 83.
EN                                             36                                             EN
 ---pagebreak---             agreement with a person other than the supplier of them;
      (b)   the creditor and the supplier of the goods or services have a pre-existing
            agreement whereby credit is made available exclusively by that creditor to
            customers of that supplier for the acquisition of goods or services from
            that supplier;
      (c)   the consumer referred to in point (a) obtains credit pursuant to that pre-
            existing agreement;
      (d)   the goods or services covered by the credit agreement are not supplied, or
            are supplied only in part, or are not in conformity with the contract to
            supply them;
      (e)   the consumer has pursued his remedies against the supplier but has failed
            to obtain the satisfaction to which he is entitled,
      the consumer shall have the right to pursue remedies against the creditor.
      Member States shall determine to what extent and under what conditions these
      remedies shall be exercisable.
   3. Paragraphs 1 and 2 are without prejudice to any national rules according to
      which a creditor shall be jointly and severally liable for any claim the consumer
      may have against the supplier where the purchase of goods or services from the
      supplier has been financed by a credit agreement.
                                       Article 16 15
                                      Early repayment
   1. The consumer shall be entitled to discharge fully or partially his obligations under a
      credit agreement at any timebefore the time fixed in the credit agreement. In such
      cases, he shall be entitled to an equitable reduction in the total cost of the credit.
   2. Any indemnity claimed by tThe creditor shall be entitled to claim shall bebe a fair
      and objective indemnity for early repayment according to the amount or the
      calculation method and shall be calculated on the basis of actuarial principlesset out
      in the credit agreement.
      However, nNo indemnity shall be claimed by the creditor:
      (a)   for credit agreements where the period used to fix the borrowing rate is less
            than one year;
      (b)   if repayment has been made under an insurance contract intended to provide a
            conventional credit repayment guarantee.
      (c)   for credit agreements.which provide for payment of charges and interest
            without capital amortisation, with the exception of the credit agreements
            referred to in Article 20.
EN                                           37                                              EN
 ---pagebreak---                                                Article 17 16
                                           Assignment of rights
   Where the creditor's rights under a credit agreement or surety agreement or the agreement
   itself are assigned to a third party, the consumer and, where applicable, the guarantor, shall be
   entitled to plead against the assignee of the creditor's rights under that agreement any defence
   which was available to him against the original creditor, including set-off where the latter is
   permitted in the Member State concerned.
   The consumer shall be informed where the credit agreement has been assigned to a third
   party except where the assignment is effected for securitisation purposes only and where
   the original creditor, in agreement with the assignee, still acts on behalf of the assignee
   as a creditor vis-à-vis the consumer.
EN                                                  38                                               EN
 ---pagebreak---                                                   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 to guarantee payment of their
   commitments under that agreement by means of a bill of exchange or promissory note.
   Moreover, the consumer shall not be required to sign a cheque guaranteeing repayment, in full
   or in part, of the amount due.
                                                Article 25 17
                      Overrunning of the total amount of creditand 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.
   1.        In the event of a significant overrunning of the total amount of credit which
             exceeds a period of one month, the creditor shall inform the consumerwithout
             delay, on paper or on another durable medium
             (a)    that he has overrun the credit total amount of credit;
             (b)    or is in an unauthorised overdraft situation and shall inform him of the amount
                    involved;
             (c)    of the borrowing rate; and
             (d)    of any penalties, charges or interest on arrears charges or penalties
                    applicable.
   2.        Any significant overrunning of the total amount of credit or overdraft as referred
             to in this articlewhich exceeds a period of three months shall be rectified, where
             necessary through a new credit agreement providing for a higher total amount of
             credit.
EN                                                    39                                             EN
 ---pagebreak---                                        CHAPTER V
      ANNUAL PERCENTAGE RATE OF CHARGE AND BORROWING RATE
                                       Article 12 18
                  Calculation of the aAnnual percentage rate of charge
   1. The annual percentage rate of charge, which equates, on an annual basis, to the
      present value of all commitments (drawdowns, repayments and charges), future or
      existing, agreed by the creditor and the consumer borrower, shall be calculated in
      accordance with the mathematical formula set out in the Annex I.
      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 the 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
      drawdownscredit transactions, the costs of using a card or another means of
      payment for both payment transactions and drawdowns, and otherthe costs relating
      to payment transactions in general shall be included in the total costs of credit to
      the consumer unless they are optional and they have been clearly and separately
      shown in the credit agreement or in any other agreement concluded with the
      consumer.
      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.
   3. The calculation of the annual percentage rate of charge shall be based on the
      assumption that the credit contract will agreement is to remain valid for the period
      agreed and the creditor and the consumer will are to fulfil their obligations under the
      terms and by the dates agreed in the credit agreement.
   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 time of calculation, the annual percentage rate of charge shall be calculated on
      the assumption that the borrowing rate and other charges will are to remain fixed in
      relation to the initial level and will are to 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 be deemed to be drawndown immediately and in full;
EN                                          40                                                  EN
 ---pagebreak---       (b)   if there is no fixed timetable for repayment, and one cannot be deduced from
            the terms of the credit 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 credit agreement provides for more than
            one repayment date, the credit is to 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 simultaneous 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.
EN                                          41                                               EN
 ---pagebreak---                                               CHAPTER VI
                                             UNFAIR TERMS
                                                Article 15
                                               Unfair terms
   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:
   (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, indemnities or charges other than the borrowing rate;
   (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;”
EN                                                  42                                               EN
 ---pagebreak---                                             CHAPTER VII
                          PERFORMANCE OF A CREDIT AGREEMENT
                                                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 to guarantee payment of their
   commitments under that agreement by means of a bill of exchange or promissory note.
   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
   1.      Member States shall ensure that the existence of a credit agreement shall not in any
           way affect the rights of 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.
   2.      If the supplier of goods or services has acted as credit 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
EN                                                  43                                             EN
 ---pagebreak---                                     CHAPTER VIII
                           SPECIFIC CREDIT AGREEMENTS
                                         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
      capital shall be based on an ancillary 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.
   3. Payments, premiums and recurrent or non-recurrent charges payable by the consumer
      under the 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.
EN                                           44                                              EN
 ---pagebreak---                                      CHAPTER VII
                    PERFORMANCE OF A SURETY AGREEMENT
                                        Article 23
                           Performance of a surety agreement
   1. A guarantor may conclude a surety agreement guaranteeing 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 guarantor must be informed as soon as a default notice has
      been sent to the consumer.
   3. The amount guaranteed may only equal the outstanding 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.
EN                                          45                                              EN
 ---pagebreak---                                               CHAPTER X
                        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 agreement may not take disproportionate
                   measures to recover amounts due to them in the event of non-performance of
                   such agreements;
            (b)    the creditor may demand immediate payment in the event of default or invoke
                   a clause providing an express resolutive condition only through a prior default
                   notice requesting the consumer or, where applicable, the guarantor to comply
                   with his obligations under the agreement within a reasonable period of time or
                   to apply for rescheduling of the debt;
            (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;
            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.
   2.       A default notice as referred to in paragraph 1 (b) is not 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 26
                                          Repossession of goods
   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
   specific consent at the moment the creditor proceeds for repossession 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.
EN                                                   46                                                EN
 ---pagebreak---    Member States shall further ensure that, where the creditor repossesses the goods, the account
   between the parties is made up so as to ensure that repossession does not entail any unjustified
   enrichment.
                                              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 procedure, the recovery of debts arising from a credit
           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 are
           specifically agreed in the credit agreement or surety 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 gives the
                 impression that it is from a judicial or debt mediation authority;
           b)    written communications containing incorrect information on the consequences
                 of defaulting on payment;
           c)    unauthorised repossession of goods without judicial proceedings or the specific
                 consent referred to in Article 26;
           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 of, or request for, information on the
                 solvency of the consumer or guarantor, without prejudice to actions forming
                 part of statutory seizure procedures as established by Member States;
           g)    physical or psychological harassment of a consumer or guarantor;
           h)    recovery of a lapsed debt.
EN                                                47                                                EN
 ---pagebreak---                                        CHAPTER VI
      REGISTRATION, STATUS AND CONTROL OF CREDITORS AND CREDIT
                                     INTERMEDIARIES
                                         Article 28 19
                RegistrationRegulation of creditors and credit intermediaries
   1.  Member States shall ensure that creditors and credit intermediaries apply for
       registration
       The obligation to register does not apply to credit intermediaries 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.
       Member States shall ensure that creditors and credit intermediaries are supervised
       by a body or authority independent from financial institutions, or regulated.
   2.  Member States shall ensure that creditors and credit intermediaries are supervised by
       a body or authority independent from financial institutions, or regulated.
       a)     ensure that the activities of creditors and credit intermediaries are subject to
              inspection or monitoring by an institution or official body;
       b)     establish appropriate bodies to receive complaints concerning credit
              agreements, surety agreements and credit and surety conditions, and to provide
              consumers and guarantors with relevant information or advice on this subject.
   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 concerned is a "credit institution" within the meaning of Article 1(1) of
       Directive 2000/12/EC of the European Parliament and of the Council19 and is
       authorised in accordance with the provisions of that Directive.
       Where a creditor or credit intermediary is both registered under the provisions of the
       first subparagraph of paragraph 1 of this article and authorised under the provisions
       of Directive 2000/12/EC of the European Parliament and of the Council, and the
       latter authorisation is subsequently withdrawn, the competent authority which has
       registered the creditor or credit intermediary shall be informed and shall decide
       whether the creditor or credit intermediary may continue to grant or arrange credit or
       whether his registration should be cancelled.
   19
      OJ L 126, 26.5.2000, p. 1.
EN                                            48                                               EN
 ---pagebreak---                                             Article 29 20
                                Obligations of credit intermediaries
   Member States shall ensure that a credit intermediary:
   (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;
   (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;
   (b)    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 agreementagreed between the
                consumer and the credit intermediary on paper or another durable
                medium;
          (ii)  the credit intermediary does not receive a fee from the creditor;
          (iii) the credit agreement for which he has acted is actually concluded;
          (iv) the credit intermediary communicates the amount of the fee to the
                creditor for the purpose of calculation of the annual percentage rate of
                charge.
EN                                               49                                              EN
 ---pagebreak---                                        CHAPTER VII
                                IMPLEMENTING MEASURES
                                         Article 30 21
      Harmonisation, mutual recognition and imperative nature of the Directive Total
              harmonisation and imperative nature of the Directive's provisions
   1.   Insofar as this Directive contains harmonised provisions, Member States may not
        maintain or 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.   When implementing and applying Article 5(1), (2) and (5), Article 13, Article
        14(1) and (2), Articles 15, 17, 19 and 20, and without prejudice to necessary and
        proportionate measures which Member States may take on grounds of public
        policy, Member States shall not restrict the activities of creditors established in
        another Member State and operating within their territory in accordance with
        this Directive either through freedom of establishment or free provision of
        services.
   3.   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.
   4.   Member States shall further ensure that the provisions they adopt in implementation
        of this dDirective 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 dDirective into credit agreements the character or purpose of
        which would make it possible to avoid its application.
   5.   Member States shall ensure that consumers and guarantors may not waive the
        rights conferred on them by this Directive.
   6.   Member States shall take the necessary measures needed to ensure that consumers
        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 third country as the law applicable to
        the credit agreement, if the credit agreement has a close link with the territory of
        one or more Member States.
EN                                            50                                                EN
 ---pagebreak---                                              Article 31 22
                                              Penalties
   The Member States shall lay down the rules on penalties applicable to for infringements of
   the national provisions adopted in application of pursuant to this Directive and shall take all
   necessary measures necessary to ensure that they are implemented. these are enforced.
   These penalties provided for must be effective, proportionate and constitute a
   deterrentdissuasive.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
   lending.Member States shall communicate these notify those provisions to the Commission
   no later than […][2 years after the entry into force of this Directive] by the date specified in
   Article 24 at the latest and shall notifiy it without delay of any subsequent amendments
   concerningaffecting them without delay.
                                             Article 32 23
                                Out-of-court dispute resolutionredress
   Member States shall ensure that adequate and effective out-of-court dispute resolution
   complaints and redress procedures for the out-of-court settlement of consumer disputes
   concerning credit agreements are put in place, using existing bodies where appropriate.
   Member States shall encourage those bodies responsible for the out-of-court settlement of
   consumer disputesto cooperate in order to also 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 of compliance with the
   consumer information obligations 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 obligations 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.
EN                                                51                                                EN
 ---pagebreak---                                           Article 34
                                    Existing agreements
   1. This Directive does not apply to credit agreements existing on the date 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 in so far as an increase in the total amount of credit or the amount
      guaranteed occurs after the national measures implementing this Directive enter into
      force.
   2. For agreements existing on the date the national implementing measures enter into
      force, 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:
      (a)    cancellation of the credit agreement or early repayment;
      b)     default on payment.
   3. Member States shall ensure that open-end credit agreements existing on the date the
      national implementing measures enter into force have to be replaced by new
      agreements which comply with this Directive are adapted to the requirements of this
      Directive by means of an addendum to the credit agreement sent by the creditor to
      the consumer, no later than [...][two years after from the end date of expiry of the
      transposition period].
                                        Article 35 24
                                        Transposition
   1. Member States shall adopt and publish, no later than [...][2 years after the entry into
      force of this Directive] by [insert date][2 years after the entry into force of this
      Directive] at the latest, the laws, regulations and administrative provisions
      necessary to comply with this Directive. They shall immediately inform the
      Commission thereof. forthwith communicate to the Commission the text of those
      provisions and a correlation table between those provisions and this Directive.
      They shall apply those provisions from [insert date] [2 years after the entry into
      force of this Directive].
      When Member States adopt theose provisions, they shall contain a reference to this
      Directive or be accompanied by such a reference on the occasion of their official
      publication. Member States shall determine how such reference is to be made.
   2. Member States shall communicate to the Commission the text of the main
      provisions of national law which they adopt in the field covered by this
      Directive.
   3. The Commission shall undertake every five years, and for the first time [five
      years after the entry into force of this Directive] a review of the thresholds in
      this Directive to assess them in the light of economic trends in the Community
EN                                            52                                                EN
 ---pagebreak---    and the situation of the market concerned. The results of the review will be
   made known to the European Parliament and the Council accompanied where
   appropriate by a proposal to modify the thresholds accordingly.
EN                                   53                                         EN
 ---pagebreak---                                            CHAPTER VIII
                              TRANSITIONAL AND FINAL PROVISIONS
                                             Article 36 25
                                                 Repeal
   Directive 87/102/EEC is repealed with effect from the end of the transposition period for this
   Directive] [insert date ].
                                             Article 34 26
                                         Transitional measures
   1.       This Directive does shall not apply to credit agreements existing on the date 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. open-end credit
            agreements.
   2.       Member States shall ensure that open-end credit agreements existing on the date the
            national implementing measures enter into force have to be replaced by new
            agreements which comply with this Directive are adapted to the requirements of
            this Directive by means of an addendum to the credit agreement sent by the
            creditor to the consumer, no later than [insert date][two years after from the end
            date of expiry of the transposition period].
                                             Article 15 27
                                 Amendment to Directive 93/13/EEC
   In the Annex to Directive 93/13/EEC, the following point 3 is added:
   ‘3.      Terms of a consumer credit agreement, as defined in Article 2(c) of
            Directive…/…/EC of the European Parliament and the Council [on the
            harmonisation of the laws, regulations and administrative provisions of the
            Member States concerning credit for consumers]∗ which have the object or
            effect of:
            (a)   imposeimposing on the consumer, as a condition for a drawdown, a
                  requirement to leave as surety, in full or in part, the sumsamounts 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 at least
                  the same rate for such deposit, purchase or surety as the agreed annual
                  percentage rate of charge;
   ∗
          *OJ L […], dd/mm/yyyy, p. […].
EN                                                 54                                              EN
 ---pagebreak---             (b)   obligeing 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 to the consumer;
            (c)   obliginge the consumer to use the same creditor to refinancethe residual value
                  and, in general, any final payment on a credit agreement for financing the
                  purchase of movable property or a service;
                                            Article 37 28
                                  Entry into force and applicability
   This Directive shall enter into force on the twentieth day following that of its publication in
   the Official Journal of the European UnionCommunities.
   However, with respect to Articles 15 and 17, Article 21(2) shall apply from [insert
   date][from six years after the date referred to in Article 24].
                                            Article 38 29
                                              Addressees
   This Directive is addressed to the Member States.
   Done at Brussels,
   For the European Parliament                  For the Council
   The President                                The President
EN                                                55                                                 EN
 ---pagebreak---                                                   ANNEX
       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.:
                                      m                      m'
                                     ∑ C k (1 + X )       = ∑ Dl (1 + X )
                                                    −t k                  − sl
                                     k =1                   l =1
   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     is the amount of drawdown k,
            tk     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,
            Dl     is the amount of a repayment or payment of charges,
            sl     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.
   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.
EN                                                       56                                         EN
 ---pagebreak---    (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.:
                                      n
                                S = ∑ Ak (1 + X ) k ,
                                                 −t
                                     k =1
       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.
EN                                            57                                              EN
 ---pagebreak---                                                ANNEX II
                Examples of calculation of the annual percentage rate of charge
   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 € 6 000.00, repayable in four equal annual instalments of
   € 1 852.00.
   The equation becomes:
                                                               1
                                                      1−
                                       6000 = 1852.
                                                          (1 + X )4
                                                             X
   or:
                                     1                 1                              1
                    6000 = 1852             + 1852            + .......... + 1852
                                 (1 + X ) 1
                                                   (1 + X ) 2
                                                                                  (1 + X ) 4
   giving X = 9.00000%, i.e. an APR of 9.0%.
EN                                                  58                                           EN
 ---pagebreak---    Example 2
   Total amount of credit (capital) € 6 000.00, repayable in 48 equal monthly instalments of
   € 149.31.
   The equation becomes:
                                                                    1
                                                      1−
                                    6000 = 149,31
                                                          [(1 + X ) ] 1 / 12 48
                                                        (1 + X )1 / 12 − 1
   or:
                                1                         1                                     1
             6000 = 149,31                 + 149,31                 + .......... + 149,31
                           (1 + X ) 1 / 12
                                                    (1 + X ) 2 / 12
                                                                                          (1 + X ) 48 / 12
   giving X = 9.380593%, i.e. an APR of 9.4%.
   Example 3
   Total amount of credit (capital) of € 6 000.00, repayable in 48 equal monthly instalments of
   € 149.31. Administrative charges of € 60.00 are payable on conclusion of the contract.
   The equation becomes:
                                                                        1
                                                         1−
                                6000 − 60 = 149,31
                                                             [(1 + X ) ]   1 / 12 48
                                                           (1 + X )1 / 12 − 1
   or:
                                1                        1                                     1
             5940 = 149,31                 + 149,31                 + .......... + 149,31
                           (1 + X ) 1 / 12
                                                    (1 + X ) 2 / 12
                                                                                          (1 + X ) 48 / 12
   giving X = 9.954966%, i.e. an APR of 10%.
EN                                                    59                                                   EN
 ---pagebreak---    Example 4
   Total amount of credit (capital) of € 6 000.00, repayable in 48 equal monthly instalments of
   € 149.31. Administrative charges of € 60.00 are spread over the repayments. The monthly
   instalment is therefore (€ 149.31 + (€ 60/48)) = € 150.56.
   The equation becomes:
                                                                      1
                                                        1−
                                      6000 = 150,56
                                                            [(1 + X ) ] 1 / 12 48
                                                          (1 + X )1 / 12 − 1
   or:
                                  1                         1                                     1
             6000 = 150,56                   + 150,56                 + .......... + 150,56
                             (1 + X ) 1 / 12
                                                      (1 + X ) 2 / 12
                                                                                             (1 + X ) 48 / 12
   giving X = 9.856689%, i.e. an APR of 9.9%.
   Example 5
   Total amount of credit (capital) of € 6 000.00, repayable in 48 equal monthly instalments of
   € 149.31. Administrative charges are € 60.00, and insurance € 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
   €152.31.
   The equation becomes:
                                                                      1
                                                        1−
                                      5940 = 152,31
                                                            [(1 + X ) ] 1 / 12 48
                                                          (1 + X )1 / 12 − 1
   or:
                                  1                         1                                     1
             5940 = 152,31                   + 152,31                 + .......... + 152,31
                             (1 + X ) 1 / 12
                                                      (1 + X ) 2 / 12
                                                                                            (1 + X ) 48 / 12
   giving X = 11.1070115%, i.e. an APR of 11.1%.
EN                                                      60                                                    EN
 ---pagebreak---    Example 6
   Balloon-type credit agreement for a total amount of credit of € 6 000.00 (purchasing price of a
   car to be financed), repayable in 47 equal monthly instalments of € 115.02 plus a final
   payment of € 1 915.02 representing the residual value of 30% of the capital (balloon
   agreement), plus insurance of € 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 € 118.02, and the final payment will
   amount to € 1 918.02.
   The equation becomes:
                                                                      1
                                                    1−
                          6000 = 118,02
                                                          [(1 + X ) ]    1 / 12 47
                                                                                      + 1918,02
                                                                                                                1
                                                     (1 + X )
                                                                       1 / 12
                                                                              −1                     [(1 + X ) ]   1 / 12 48
   or:
                       1                             1                                           1                                                   1
   6000 = 118,02                   + 118,02                     + ..........118,02                           + (1800 + 115,02 + 3).
                  (1 + X )1 / 12               (1 + X ) 2 / 12                            (1 + X ) 47 / 12                                   (1 + X ) 48 / 12
   giving X = 9.381567%, i.e. an APR of 9.4%.
   Example 7
   Credit agreement for a total amount of credit (capital) of € 6 000.00, with administrative
   charges of € 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 € 186.36 and € 111.82.
   The equation becomes:
                                                  1                                                1            
                                    1−                                                1−
             5940 = 186,36
                                        [(1 + X ) ] 1 / 12 22        
                                                                     
                                                                 +  111,82
                                                                                            [(1+ X )          ]
                                                                                                        1 / 12 26 
                                                                                                                  .            1            
                                                                                                                                          22 
                                      (1 + X )1 / 12    −1           
                                                                                        (1 + X )1 / 12 − 1
                                                                                                                  
                                                                                                                       [
                                                                                                                   (1 + X )1 / 12       ]    
                                                                                                               
                                                                     
   or:
                                    1                                   1                                                 1           
        5940 = 186,36                          + 186,36                              + .......... + 186,36                    22 / 12 
                                                                                                                                         +
                           (1 + X )    1 / 12
                                                               (1 + X )        2 / 12
                                                                                                                  (1 + X )             
                     1                                  1                                                   1                       1            
         111,82                    + 111,82                            + .......... + 111,82                    26 / 12 
                                                                                                                           .                      22 
                (1 + X )   1 / 12
                                                   (1 + X )     2 / 12
                                                                                                     (1 + X )                [
                                                                                                                           (1 + X )1 / 12       ]    
   giving X = 10.04089%, i.e. an APR of 10.0%.
EN                                                                          61                                                                                EN
 ---pagebreak---    Example 8
   Credit agreement for a total amount of credit (capital) of € 6 000.00, with administrative
   charges of € 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 € 112.15 and € 186.91.
   The equation becomes:
                                              1                                               1           
                                 1−                                             1−
             5940 = 112,15
                                     [(1 + X ) ]  1 / 12 22      
                                                                 
                                                             +  186,91
                                                                                     [(1+ X )           ]
                                                                                                  1 / 12 26 
                                                                                                            .            1           
                                                                                                                                       
                                   (1 + X )  1 / 12
                                                      −1         
                                                                                 (1 + X )1 / 12 − 1
                                                                                                            
                                                                                                               [
                                                                                                             (1 + X )1 / 12      ]22
                                                                                                                                       
                                                                                                         
                                                                 
   or:
                                 1                                1                                                1           
        5940 = 112,15                      + 112,15                           + .......... + 112,15                    22 / 12 
                                                                                                                                  +
                        (1 + X )    1 / 12
                                                           (1 + X )    2 / 12
                                                                                                           (1 + X )             
                    1                                 1                                               1                       1           
         186,91                 + 186,91                          + .......... + 186,91                    26 / 12 
                                                                                                                      .                    22 
               (1 + X ) 1 / 12
                                               (1 + X )     2 / 12
                                                                                                (1 + X )                [
                                                                                                                      (1 + X )1 / 12     ]    
   giving X = 9.888383%, i.e. an APR of 9.9%.
   Example 9
   Credit agreement for a total amount of credit (price of goods) of € 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 € 171.69 + € 10.00 charges = € 181.69.
   The equation becomes:
                                                                                    1
                                                                     1−
                                              500 = 181,69
                                                                            [(1 + X ) ]1 / 12 3
                                                                       (1 + X )1 / 12 − 1
   or:
                       1                                 1                                 1
   500 = 181,69                   + 181,69                         + 181,69
                  (1 + X ) 1 / 12
                                               (1 + X )     2 / 12
                                                                                  (1 + X ) 3 / 12
   giving X = 68.474596%, i.e. an APR of 68.5%.
   This example typifies practices still used by certain specialist "vendor-credit" establishments.
EN                                                                   62                                                                           EN
 ---pagebreak---    Example 10
   Credit agreement for a total amount of credit (capital) of € 1 000, repayable in two
   instalments of either € 700.00 after one year and € 500.00 after two years, or € 500.00 after
   one year and € 700.00 after two years
   The equation becomes:
                                                1                             1
                             1000 = 700                     + 500
                                         [(1 + X ) ]
                                                  1 / 12 12
                                                                    [(1 + X ) ] 1 / 12 24
   giving X = 13.898663%, i.e. an APR of 13,9%.
   or:
                                                1                             1
                             1000 = 500                     + 700
                                         [(1 + X ) ]
                                                  1 / 12 12
                                                                    [(1 + X ) ] 1 / 12 24
   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 consumerDespite the total cost of credit being € 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 € 6 000, with a borrowing rate of 9%,
   repayment in four equal annual instalments of € 1 852.01, and administrative charges of
   € 60.00 payable on conclusion of the agreement.
   The equation becomes:
                                                                    1
                                                           1−
                                      5940 = 1852,01
                                                              (1 + X )4
                                                                  X
   or:
                                    1                       1                                 1
                5940 = 1852,01           + 1852,01                 + .......... + 1852,01
                                (1 + X )               (1 + X ) 2
                                                                                          (1 + X ) 4
   giving X = 9.459052%, i.e. an APR of 9.5%.
   In the event of early repayment, the equations become:
EN                                                     63                                            EN
 ---pagebreak---    After one year:
                                                           1
                                          5940 = 6540
                                                       (1 + X )
   where 6540 is the sum due, including interest, before payment of the first scheduled payment
   according to the amortisation table,
   giving X = 10.101010%, i.e. an APR of 10.1%.
   After two years:
                                                  1                    1
                             5940 = 1852,01            + 5109,91
                                              (1 + X )             (1 + X ) 2
   where 5109.91 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:
                                        1                   1                     1
                    5940 = 1852,01           + 1852,01             + 3551,11
                                    (1 + X )            (1 + X ) 2
                                                                              (1 + X ) 3
   where 3551.11 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.
EN                                                 64                                           EN
 ---pagebreak---    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
EN                                               65                                                EN
 ---pagebreak---    Example 12
   Credit agreement for a total amount of credit of € 6 000, with a borrowing rate T of 9%
   (nominal rate), repayment in 48 monthly instalments of € 149.31 (calculated proportionally),
   and administrative charges of € 60.00 payable on conclusion of the agreement.
   The equation becomes:
                                                                              1
                                                              1−
                                    5940 = 149,31
                                                                    [(1 + X ) ] 1 / 12 48
                                                                  (1 + X )1 / 12 − 1
   or:
                                 1                                  1                                        1
             5940 = 149,31                   + 149,31                         + .......... + 149,31
                            (1 + X ) 1 / 12
                                                           (1 + X )    2 / 12
                                                                                                        (1 + X ) 48 / 12
   giving X = 9.9954957%, i.e. an APR of 10%.
   However, in the case of early repayment, this becomes:
   After one year:
                                                       1
                                          1−
                       5940 = 149,31
                                               [(1 + X ) ]  1 / 12 11
                                                                       + 4844,64
                                                                                               1
                                            (1 + X )
                                                         1 / 12
                                                                 −1                     [(1 + X ) ]
                                                                                                 1 / 12 12
   where 4844.64 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:
                                                       1
                                          1−
                      5940 = 149,31
                                               [(1 + X ) ] 1 / 12 23
                                                                       + 3417,58
                                                                                               1
                                             (1 + X ) 1 / 12
                                                                −1                      [(1 + X ) ]
                                                                                                 1 / 12 24
   where 3417.58 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%.
EN                                                            66                                                         EN
 ---pagebreak---    After three years:
                                                    1
                                       1−
                         5940 = 149,31
                                            [(1 + X ) ] 1 / 12 35
                                                                  + 1856,66
                                                                                     1
                                          (1 + X ) 1 / 12
                                                            −1               [(1 + X ) ]
                                                                                       1 / 12 36
   where 1856.66 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 € 6 000.00, repayable in four equal annual instalments of
   € 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 € 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.
                                                           1                           1             
                                              1−                              1−
                            5940 = 1852,01
                                                  (1 + X )      2
                                                                  + 1877,17
                                                                                   (1 + X ) . 1 
                                                                                              2
                                                       X                            X           X2
                                                                                                     
   The equation becomes:                                                                              or
                          1                   1                          1                         1        1 
     5940 = 1852,01            + 1852,01               + 1877,17                 + 1877,17               4 
                                                                                                               + 2
                      (1 + X )           (1 + X ) 2
                                                                     (1 + X  ) 3
                                                                                                 (1 +  X )     X 
   giving X = 9.741569, i.e. an APR of 9.7%.
   Example 14
   Total amount of credit (capital) of € 6 000.00, repayable in 48 equal monthly instalments of
   € 149.31, with administrative charges of € 60.00 payable on conclusion of the agreement, plus
   insurance of € 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 € 152.31 and the calculation, as in example 5, gives
   X = 11.107112, i.e. an APR of 11.11%.
EN                                                         67                                                       EN
 ---pagebreak---    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:
                                     1                                                      1                                     
                    1−                                                    1−
   5940 = 151,91
                          [(1 + X ) ]     1 / 12 17          
                                                             
                                                        + 154,22
                                                                                 [( 1+ X )             ]
                                                                                                 1 / 12 31
                                                                                                           .
                                                                                                                     1
                                                                                                                                   
                                                                                                                                   
                       (1 + X )     1 / 12
                                              −1             
                                                             
                                                                             (1 + X ) − 1 (1 + X )1 / 12
                                                                                            1 / 12
                                                                                                             [                ]17 
                                                                                                                                   
                                                                                                                                  or:
                               1                                       1                                                  1          
   5940 = 151,91                             + 151,91                               + .......... + 151,91                    17 / 12 
                                                                                                                                        +
                     (1 + X )     1 / 12
                                                                (1 + X )   2 / 12
                                                                                                                  (1 + X )            
                 1                                          1                                                  1                      1       
     154,22                   + 154,22                                 + .......... + 154,22                       31 / 12 
                                                                                                                               .                   
            (1 + X ) 1 / 12
                                                     (1 + X )     2 / 12
                                                                                                           (1 + X )              [
                                                                                                                              (1 + X )1 / 12 ]17
                                                                                                                                                   
                                                      1
                                 1−
                                        [(1 + X ) ]     1 / 12 31
         4107,06 = 153.,06
                                   (1 + X )1 / 12 − 1
   or:
                                  1                                       1                                                   1
       4107.06 = 153,06                               + 153,06                               + .......... + 153,06
                               (1 + X )       1 / 12
                                                                       (1 + X )      2 / 12
                                                                                                                          (1 + X ) 31 / 12
   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 € 15 000.00. The agreement
   stipulates 48 monthly instalments of € 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 € 1 250.
   The equation becomes:
                                                                               1
                                                                1−
                                  14650 = 350
                                                                     [(1 + X ) ]  1 / 12 47
                                                                                                 + 1250
                                                                                                                    1
                                                                 (1 + X )
                                                                                1 / 12
                                                                                        −1                   [(1 + X ) ]
                                                                                                                       1 / 12 48
   or:
EN                                                                                  68                                                                EN
 ---pagebreak---                     1                     1                                  1                       1
   14650 = 350                 + 350                 + .......... + 350                  + 1250
               (1 + X ) 1 / 12
                                     (1 + X ) 2 / 12
                                                                        (1 + X ) 47 / 12
                                                                                                (1 + X ) 48 / 12
EN                                                   69                                                          EN
 ---pagebreak---    giving X = 9.541856%, i.e. an APR of 9.5%.
   Example 1611
   Credit agreement of the “financing”, “vendor credit” or “hire purchase” type for goods with a
   value of € 2 500. The credit agreement provides for a down-payment of € 500 plus 24
   monthly instalments of € 100, the first of which must be paid within 20 days of the goods
   being placed at the consumer’s disposal.
   In such cases the down-payment is never part of the financing operation.
   The equation becomes:
                                                                                             1
                                                                              1−
                       (2500 − 500).
                                                      1
                                                                      = 100
                                                                                    [(1 + X ) ]1 / 12 24
                                         [(1 + X ) ]                              (1 + X )1 / 12 − 1
                                                           365     
                                                  1 / 365  12 − 20 
                                                                   
   or:
                       1                       1                        1                                     1
           2000.                   = 100                 + 100                     + .......... + 100
                 (1 + X )
                         10 , 4316
                           365
                                         (1 + X ) 1 / 12
                                                                  (1 + X ) 2 / 12
                                                                                                         (1 + X ) 24 / 12
   giving X = 20.395287, or an APR of 20.4%.
EN                                                          70                                                            EN
 ---pagebreak---    Example 17
   Credit agreement for a credit line of € 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 = 2500. (1,08)
                                                                  1 / 12
                                                                            ]
                                                                         − 1 + 0,25}
   or:
                                     a = 2500.(0,006434 + 0,0025) = 22,34
   This becomes:
                                                             1
                                               1−
                                2500 = 22,34
                                                    [(1 + X ) ]  1 / 12 6
                                                                           + 2500
                                                                                        1
                                                 (1 + X )   1 / 12
                                                                    −1             (1 + X )6 / 12
   or:
                       1                        1                                       1                     1
    2500 = 22,34                  + 22,34                  + .......... + 22,34                   + 2500
                  (1 + X ) 1 / 12
                                           (1 + X ) 2 / 12
                                                                                  (1 + X ) 6 / 12
                                                                                                         (1 + X ) 6 / 12
   giving X = 11.263633 i.e. an APR of 11.3%.
   Example 13
   Credit agreement for an open-end credit line of € 2 500. The agreement provides for a
   minimum half-yearly payment of 25% of the outstanding balance (capital and interest), with a
   minimum of € 25. The annual borrowing rate (effective rate) is 12%, and the administrative
   charge payable on conclusion of the agreement is € 50.
   (The equivalent monthly rate is obtained by the equation:
                                          i = (1 + 0,12) 6 / 12 − 1 = 0,00583
   or 5.83%).
   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.
EN                                                           71                                                          EN
 ---pagebreak---    The equation becomes:
                                   1                         1                                      1                           1
    2500 − 50 = 661,44                        + 525                      + .......... + 25                     + 15,28
                              (1 + X ) 6 / 12
                                                       (1 + X )  12 / 12
                                                                                             (1 + X ) 108 / 12
                                                                                                                          (1 + X )114 / 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: € 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 € 25. The annual cost of the card is € 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:
                   1                            1                                     1                          1
   700 = 55                    + 33,57                    + .......... + 25                      + 2,25
              (1 + X ) 1 / 12
                                          (1 + X ) 2 / 12
                                                                              (1 + X )   30 / 12
                                                                                                         (1 + X ) 31 / 12
   giving X = 18.470574, i.e. an APR of 18.5%
   Example 20
   Open-end credit line in the form of an overdraftadvance on a current account. Total amount of
   credit: € 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 € 2.50.
   It is assumed that the full amount of credit will be drawn down, with repayment in theory
   after one year.
EN                                                                  72                                                                     EN
 ---pagebreak---    First of all, the theoretical scheduled payment of interest and charges (a) is calculated
                                               {          [
                                           a = 2500. (1,08)
                                                                      1 / 12
                                                                                ]
                                                                             − 1 + 2,50 ,
   then:
                                                              1
                                               1−
                                2500 = 18,59
                                                   [(1 + X ) ]    1 / 12 12
                                                                              + 2500
                                                                                            1
                                                (1 + X )     1 / 12
                                                                      −1              (1 + X )
                                                                                             1 / 12 12
   i.e.:
                        1                       1                                          1                      1
    2500 = 18,59                   + 18,59                  + .......... + 18,59                      + 2500
                   (1 + X ) 1 / 12
                                           (1 + X ) 2 / 12
                                                                                     (1 + X ) 12 / 12
                                                                                                             (1 + X )12 / 12
   giving X = 9.295804, i.e. an APR of 9.3%
EN                                                               73                                                          EN
 ---pagebreak---         ANNEX III – 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
   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 € 6000 over N = two years is subject to the saving in
   advance over M = two years of half of the said amount, i.e. € 3000 in all, of which the final
   amount saved is € 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%
   insteadThe amount saved each month is e = € 125.00, the monthly repayment a = € 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
                                     1                                                      1            
                       1−                                                           1−
                      
        6000 + 3000 = 125
                               [(1+ X )         ] [
                                          1 / 12 24
                                                    . (1 + X )
                                                              1 / 12
                                                                     ]25
                                                                          
                                                                          + 140,91    [(1 + X )1 / 12 ]48 
                                                                                                            
                            (1 + X ) − 1
                                     1 / 12                                         (1 + X )1 / 12 − 1    ,
                                                                                                         
                                                                                                      
   or:
EN                                                         74                                                  EN
 ---pagebreak---    6000 + 3000 = 125
                                        1
                                     (1 + X ) 1 / 12
                                                     + 125
                                                                   1
                                                             (1 + X )  2 / 12
                                                                              + .......... + 125
                                                                                                 (1 + X )
                                                                                                           1          
                                                                                                              24 / 12 
                                                                                                                        [
                                                                                                                       . (1 + X )
                                                                                                                                 1 / 12
                                                                                                                                        ]25
                                                                                                                                            }
                                                                                                                    
                       1                              1                                        1           
    + 140,91                        + 140,91                    + .......... + 140,91              48 / 12 
                 (1 + X )   1 / 12
                                                 (1 + X ) 2 / 12
                                                                                           (1 + X )         
                                                                                                                                             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 = 0.089 and the value of the first member is calculated at -5.7.
   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 € 6000 over N = two years is subject to the saving in
   advance over M = two years of half of the said amount, i.e. € 3000 in all, of which the final
   amount saved is € 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 = € 125.00, the monthly repayment a = € 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:
                  (1 + i ) n − 1
    M ' = 125.
                        i           , where
   i = (1 + S )1 / 12 − 1
   and n = 24 months
   or:
                         (1,03) 24 / 12 − 1
    M ' (t −1 ) = 125.                        = 3086,65
                          (1.03)1 / 12 − 1                     and
    M ' (t 0 ) = 3086,65.(1,03)1 / 12 = 3094,26
EN                                                                      75                                                                      EN
 ---pagebreak---    where t0 = time of credit drawdown.
EN                                     76 EN
 ---pagebreak---    To find the APR for the transaction as a whole:
                                           1                                                                   1            
                                1−                                                                 1−
   3094,26 + 6000 = 125
                         
                                   [(1+ X )          ] [
                                                1 / 12 24
                                                             . (1 + X )
                                                                        1 / 12
                                                                               ]25
                                                                                    
                                                                                    + 140,91           [(1 + X )1 / 12   ]48 
                                                                                                                               
                                 (1 + X ) − 1
                                           1 / 12                                                   (1 + X )1 / 12 − 1       
                                                                                                                            
                                                                                                                          or:
   3094,26 + 6000 = 125
                                     1
                                 (1 + X ) 1 / 12
                                                    + 125
                                                                      1
                                                                (1 + X ) 2 / 12
                                                                                 + .......... + 125
                                                                                                      (1 + X )
                                                                                                              1           
                                                                                                                  24 / 12 
                                                                                                                            [
                                                                                                                           . (1 + X )
                                                                                                                                       1 / 12
                                                                                                                                              ]25
                                                                                                                                                  }
                                                                                                                        
                 1                              1                                               1         
   + 140,91                  + 140,91                        + .......... + 140,91                48 / 12 
            (1 + X ) 1 / 12
                                        (1 + X )      2 / 12
                                                                                         (1 + X )          
   To solve the equation a recursive method can again be used with X = 7.484710, or an APR of
   7.5%.
   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
                  calculation2.2. 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 € 6000 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 € 1200.00 and that this amount saved has attracted 4%. The balance
                  of this account, before the final repayment is due, will be € 3895.76. It will
                  then be necessary for him to add an additional € 2104.24. His timetable will be
                  for three annuities at € 1740.00 and one at € 2644.24 for a capital of € 6000.
                  The formula:
                                                                    1
                                                       1−
                                 6000 = 1740.
                                                               (1 + X )3     + 2644,24.
                                                                                                   1
                                                                 X                            ((1 + X )4
                  or:
                                                      1                           1                        1                                1
                             6000 = 1740.                        + 1740.                  + 1740.                  + 2644,24.
                                               (1 + X )      1
                                                                            (1 + X )   2
                                                                                                     (1 + X )   3
                                                                                                                                     (1 + X )4
                  and X = 10.955466, or an APR of 10.96%
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