Background: addressing the shortcomings of the current CCD
In broad terms, the Commission’s review of the current Consumer Credit Directive (part of its 2020 work programme) found that it had not kept pace with emerging consumer credit products, consumer behaviour and technological developments. In addition, imprecise wording of certain provisions had led to member states adopting diverging provisions. This had resulted in a highly fragmented regulatory framework across the EU in a number of aspects of consumer credit, impeding the opportunities created by digitalisation, in particular, to develop the cross-border consumer credit market.
The European Commission therefore adopted a legislative proposal on the proposed CCD II on 30 June 2021. On 2 December 2022, the Council and the Parliament announced that they had reached provisional political agreement on the revised text of the proposal. The agreed revised text has not yet been published.
The CCD II proposal is part of the Commission’s New Consumer Agenda, which was launched in 2020 to update the EU’s overall strategic framework for its consumer policy.
What’s in the CCD II legislative proposal?
CCD II proposes to expand the scope of European regulation, including to:
- credit agreements under EUR 200 and up to EUR 100,000;
- leasing agreements that have an option to purchase goods or services (e.g. certain motor finance products);
- credit agreements where the credit is granted free of interest and without any other charges; and
- credit agreements under the terms of which the credit has to be repaid within three months and only insignificant charges are payable, capturing buy-now pay-later (BNPL) products.
Other changes in the legislative proposal include:
- adapting information requirements to ensure they cater for digital devices;
- making information relating to credit offers clearer and avoiding information overload for consumers;
- addressing practices that exploit consumer behaviour such as product tying, pre-ticked boxes or unsolicited credit sales;
- improving rules on assessing consumer creditworthiness to ensure appropriate and proportionate data is used and to prevent over-indebtedness;
- allowing member states to cap the cost of credit for consumers;
- supporting consumers who experience financial difficulties through forbearance measures and debt advice services;
- introducing requirements for businesses to put consumers' needs first and act ethically; and
- ensuring that staff have an appropriate knowledge of and competence in relation to credit.
Although the agreed revised text of CCD II is not yet available, the Parliament’s press release on the political agreement refers, among other things, to the inclusion of an additional measure that protects cancer survivors applying for credit for which insurance is required, under which they have the "right to be forgotten" after a relevant period of time to ensure that their former illness does not affect insurance rates.
The proposal is being considered under the EU’s ordinary legislative procedure. The Council and the Parliament will now need to approve the provisional agreement before going through the formal adoption procedure. Implementation of CCD II is still some time away. Member states will have 24 months after the proposal is adopted to adopt and publish the laws, regulations and administrative provisions necessary to comply with CCD II, and the implementing measures will have to be applied six months from the transposition date.
Please contact us if you would like to discuss any aspect of this development.
Authored by Virginia Montgomery
Hogan Lovells (Luxembourg) LLP is registered with the Luxembourg bar.