08 Jan 2020

The European Banking Federation (EBF) has produced a draft response to the European Commission's evaluation of the Consumer Credit Directive (CCD). The Commission launched a public consultation in 2018 to assess whether, ten years after its adoption, the Directive is still fit for purpose given the market developments that have occurred since 2008. In its draft response to the consultation, the EBF has now commented that the CCD provides a "sound and solid framework on fair access to credit, together with clear provisions on consumer protection". For example, in respect of the Credit Worthiness Assessment requirements, the EBF considers that these requirements establish rules to not only ensure consumer protection but also that the cost of over indebtedness and resulting non-payment of loans is minimised.

The EBF has suggested that if the Commission pursues a review of the CCD, such review should only target the elements of the Directive where a clear benefit can be achieved for both consumers and lenders. If the review leads to the CCD being revised, in the EBF's view, such amendments should focus on (a) streamlining the existing rules to address the inefficiencies resulting from standardised provision of information and (b) integrating the rapid developments of digitalisation. 

The EBF has commented on several key points in more detail as follows:

A flexible and future-proof text to ensure tailored and understandable provision of information

Whilst the EBF has confirmed its support of the CCD's aim to provide adequate information to consumers, it noted that the Directive's requirements can often overload consumers with information potentially to their detriment. This is because consumers may ignore key aspects of financial products due to decision fatigue developed as a result of the excessive information. To tackle this, the EBF has suggested that no further requirements should be introduced but that existing rules should be streamlined to be more effective in a digitally advanced world. 

Further, it is the EBF's view that the requirement for information to be provided by "durable medium" will not be interpreted narrowly (i.e. as requiring paper documentation only) but that developments in technology and digitalisation (e.g. cloud) will be taken into account. The EBF suggests this would facilitate the provision of information to consumers whilst ensuring a better customer journey and a reduction in costs.

Flexible Credit Worthiness Assessment to guarantee financial inclusion

The EBF recommends that the flexibility in the credit worthiness assessment process should be maintained. The Commission should therefore avoid any rigid standardisation of the credit worthiness assessment at EU level as this would potentially prevent certain consumers from accessing credit and therefore lead to financial exclusion. The EBF has warned that if common standards for credit worthiness assessment are introduced, such standards may result in the risk of not being able to deny credit if the European criteria are met. This would also create a right to credit which is rejected by the requirements of the Mortgage Credit Directive. Instead of standardised requirements, the EBF recommends allowing the credit worthiness assessment process to be based on the knowledge of national market peculiarities and the expertise of the borrower.

Activity-based approach and technological-neutrality as cornerstones of the digitalisation of the financial market

The EBF supports the digitalisation of the banking industry, describing it as a "fundamental tool" to support customers in accessing credit both within their own member state and cross-border. However, the EBF has noted how gold-plating practices, for example that a written form for the conclusion of consumer loans is still mandatory, have prevented the benefits of digitalisation from being fully realised. The EBF therefore suggests ensuring that existing rules are enforced without any gold-plating practices.

In respect of consumer protection, the EBF has noted significant loopholes in the case where credit is provided by lenders which do not fall within the scope of the CCD and therefore do not need to comply with its requirements. The EBF recommends that in order to further enhance harmonisation in the EU credit market and, as a result, further improve consumer protection, a consistent set of rules on responsible lending, transparency and compliance should apply across the board; the principle "same business, same rules, same supervision" should be respected and upheld.

EBA Draft Guidelines on Loan Origination and Monitoring

The EBF has also taken the opportunity to comment on the EBA's Draft Guidelines, highlighting that the purpose of the guidelines is to support harmonised interpretation and application of EU level 1 legislation and not to change existing or add new requirements to the current or future text. The EBF believes that the Draft Guidelines go beyond this mandate and that if the CCD is revised following the current evaluation exercise, such changes should be subject to the co-decision process of the European Parliament and the Council. The EBF has also commented that the current wording of the Draft Guidelines does not take the principle of proportionality into consideration and that it introduces de facto standardised loan monitoring and origination practices irrespective of the peculiarities of the credit in question. The EBF believes that such practices will heavily affect the financing of the SMEs which form the backbone of the EU economy. The EBF therefore recommends considering forward-looking, principle-based yet prudent guidelines to meet transition change and has separately suggested various amendments to the current text.

Whilst the EBA has not provided any firm indication as to timelines around the guidelines' publication, it has previously confirmed that the guidelines will apply from 30 June 2020. The deadline for competent authorities to report on whether they comply with the guidelines will be two months after the publication of the guidelines on the EBA's website.