Kyprianou bends to Parliament’s demands on consumer credit law

By Anna McLauchlin

Date: 21/04/05

The vexed issue of an EU directive on consumer credit is being resurrected, with the European Commission hoping that this time it has found a winning formula.

A draft text, drawn up by the Commission's Consumer Affairs directorate-general (DG), is currently circulating among other Commission departments. Sources close to the situation say that it could be adopted by the college of commissioners some time in May. A senior Commission official said that the new draft, which has already been agreed between the internal market and consumer departments, is a "significant step in the direction of the European Parliament".

The EU executive has relented on the most important issue concerning 'maximum harmonisation' of consumer protection rules. Parliament argued that this would mean that standards in those countries where protection is currently strong would be brought down to the lowest level. It was pushing for minimum standards that member states could then 'gold-plate' to maintain their high standards.

The text now being proposed strips out maximum harmonisation as an underlying principle, maintaining it in just some areas such as information standards.

"It's a good idea but there could still be problems," said German Christian Democrat Joachim Wuermeling, who is in charge of drafting the Parliament's view. "If we are talking about harmonisation of the cooling-off period, which is two weeks in Germany and one week in France, then it might need a closer look."

Sensitive areas such as mortgages and securities have also been removed from the scope of the proposal, and the Commission has softened its rules on the responsibility of lenders to provide the best deal for consumers.

Credit providers had protested against the original proposal, which would have made lenders entirely responsible for advising consumers on which was the best product for them. Under the revised text they would have to provide all the information but consumers would have to work out which was the best deal for them, although according to Wuermeling there is still too much emphasis on the banks', rather than the consumers', obligations.

The MEP said he was still unhappy with the Commission's insistence on allowing only partially exemption from the directive for loans of under €300. The Parliament had proposed full exemption for all loans under €500.

"In distance-selling of electronic goods, there are many credit agreements between €300 and €500 but very few over €500," he argued. "Complying with the directive for a €400 credit agreement is still a big burden for companies over what is still a very small amount."

But Wuermeling said that the new draft was still likely to meet with less resistance from MEPs than the previous Commission text, which was weighted very firmly in favour of the consumer.

"The objective of the previous text was to limit consumer credit, which would have put a brake on growth," he said. "Consumer credit is not a bad thing in itself and can be very important for people with low incomes, for example in car leasing. The Commission has moved to comply more with the Lisbon goals."

But the way for the Commission may not be entirely clear. Sources say that at least two of the executive's departments have concerns about the draft, despite the fact that the consultation period ended on Tuesday (19 April).

The Commission's justice and internal market departments - DG Justice, Freedom and Security and DG Internal Market - have complained that the text was drafted without proper consultation or impact assessment.

DG Justice has considerable worries about the relationship between some of the text and EU contract law, while DG Enterprise is worried about the impact the directive could have on small businesses, which are beginning to offer more credit. At a meeting on 19 April with Enterprise Commissioner Günter Verheugen, UEAPME, the European organisation for small- and medium-sized businesses (SMEs), called for the directive to be subjected to a thorough impact assessment, with an emphasis on the possible effects for SMEs.

A credit expert at the European Banking Federation said that it was unable to comment, as it had not seen the full text.

This is the Commission's third attempt at a law on consumer credit, which will lay down rights and obligations for consumers and lenders in the EU.

The first proposal was significantly changed by the Parliament in April last year at first reading. An amended proposal presented in early November, just before the former Commission bowed out, did not go far enough to appease its critics. As a result the new Commissioner for Consumer Affairs, Markos Kyprianou, decided to rework the law.

If the current draft is adopted by the Commission, it will be up to the Parliament to decide whether or not to go back to first reading or whether the Council of Ministers will try to reach a common position and then move straight to second reading.

Wuermeling said that his personal view was that, as Parliament had been consulted in the drafting of the new text, another first reading should not be necessary.

Article reports that a new proposal for an EU Directive on consumer credit proposed made concessions to the position of the European Parliament, opting for minimum standards rather than maximum harmonisation as an underlying principle, maintaining it in just some areas such as information standards. Thus, countries with a generally higher level of protection could maintain their standards.

European Commission: DG Consumer Protection: Safeguarding Consumers' Interests: Financial Services: Consumer Credit Directive http://ec.europa.eu/comm/consumers/cons_int/fina_serv/cons_directive/index_en.htm

---