Lenders near accord on home-loan rules

Date: 21/01/1999

By Renée Cordes

EUROPEAN mortgage lenders have broken a two-year deadlock over plans for an industry-wide code of conduct aimed at making it easier for would-be borrowers to shop around for the best deal.

The Banking Federation of the European Union (FBE) says a voluntary deal is now in sight which would avert the risk of EU-wide legislation being imposed on the industry.

The FBE and the Union's other main banking groups hope to present a proposed agreement at a meeting with European Commission officials tomorrow (22 January).

The draft code would make it easier for consumers to compare loan terms in different member states by requiring lenders to provide borrowers with easy-to-read fact sheets giving details of the conditions attached to their mortgage offer.

"We may finally have a common position," said Nikolaus Bömcke, secretary-general of the FBE, this week. "That was a big breakthrough."

He added, however, that the draft had yet to be approved by all Europe's banking groups, consumer organisations and the Commission.

Although the new code would be voluntary, the latest proposal envisages the Commission assuming a supervisory role and monitoring whether it was being properly implemented.

The move follows calls from Internal Market Commissioner Mario Monti and Consumer Commissioner Emma Bonino in 1997 for the financial sector and consumer groups to discuss ways of ensuring that borrowers are given adequate information before taking out home loans. This reflected concern that consumers would not be able to shop around for mortgages despite the advent of the single market without EU-wide rules.

Progress on a voluntarily agreement has, however, been delayed by disagreements between Europe's main banking associations over several key issues. These include the question of what sanctions should be applied if companies breach the code and what type of information firms should be obliged to give to borrowers.

Consumer groups have long argued that banks should be required by law to give consumers enough information to make informed choices, and have repeatedly called on the Commission to come forward with new proposals for legislation to extend the scope of an existing EU directive on consumer credit, agreed in 1997.

Mortgage lenders insist, however, that home loans cannot be treated in the same way as other credit facilities, because they involve more money than consumer loans, are more complex and usually require the borrower to obtain legal advice.

A Commission official said this week that the institution was eager for the industry to agree the proposed code.

"The point is to reach a substantial and tangible conclusion to this issue as soon as possible," he said. He added that in the absence of an agreement, the Commission would consider coming forward with proposals for binding legislation.