Presidency nears deal on consumer loans market

The German presidency of the EU is close to brokering a deal on controversial plans to wrench open the €800 billion-a-year consumer loans market, despite industry concerns that the proposals may be untimely and damaging.

Member states are expected to agree on rules at a meeting of industry ministers later this month (21-22 May).

The consumer credit directive is an integral part of the European Commission’s drive to create a single market for retail financial services. Proposals set common rules on information to be given to customers, calculation of loan rates, repayment conditions and withdrawal from contracts.

Despite touted benefits for banks and borrowers, negotiations have been stuck since 2005, when a revised text was put forward by the Commission after a first reading vote in the European Parliament. The German presidency is now determined to break the deadlock with a new compromise draft.

"I think this compromise is in the right direction. It is a good foundation," said Consumer Protection Commissioner Meglena Kuneva. "I am fully convinced that results can be guaranteed if we work hand-in-hand."

Referring to figures issued by the European Central Bank, Kuneva highlighted discrepancies in the EU retail landscape. "The average rate charged on consumer credit in the eurozone is around 6% in the cheapest country, Finland, and over 12% in Portugal," she said.

The German compromise, seen by European Voice, sets harmonised approaches to calculating overdraft rates and early repayment fees. It also introduces a set format for presenting information on loan conditions to consumers.

But banks are not convinced. The UK, which has the most developed consumer credit market in the EU, is the primary dissenter. On the subject of compromise calculations for repayment fees that borrowers pay when paying loans early, Eric Leenders, an executive director at the British Bankers Association, said: "The way it’s prescribed, the lender won’t necessarily recoup the costs."

Leenders also scorned attempts to meddle in methods of calculating overdrafts, a particularly fraught area given fluctuating loan periods and amounts.

The presidency’s task of pushing through new rules is further complicated by the changing industry landscape. The sector is currently subject to a wave of consolidation typified by the recent battle for Dutch group ABN Amro between UK bank Barclays and a consortium led by Royal Bank of Scotland.

Bankers fear that the five-year-old rules could now be out of date.

A Commission official described the delicate balancing act of satisfying both banks and consumers. "It is a tricky situation in that you have to find a situation that is equitable for consumers and banks," he said.

"The consumer has to know what he has to pay back. The interest of banks is not to lose out."

Despite remaining fears, however, proposals are close to adoption.

"There have been so many twists and turns, but there’s a genuine will now to reach political agreement under the German presidency," said Leenders.

The German presidency of the EU is close to brokering a deal on controversial plans to wrench open the €800 billion-a-year consumer loans market, despite industry concerns that the proposals may be untimely and damaging.