MEP aims to cut consumer credit law down to size

Date: 06/02/03

By Peter Chapman

A CONTROVERSIAL new directive which is supposed to protect the rights of the poor will actually result in them being denied access to credit and loans, the MEP leading Parliament's scrutiny of the law has warned.

German Christian Democrat Joachim Würmeling said the credit crunch for the EU's most vulnerable people tops a raft of concerns he has over the draft law.

He claims the red tape that firms will have to overcome under the new law would be too costly to make it worthwhile to issue small loans and credit.

Würmeling told European Voice he will seek changes to the law in his report, which is due to be unveiled after public hearings in April.

For instance, he wants to set a minimum loan value below which the law would not apply. He favours "a bit more" than the €200 limit under the existing consumer credit directive, which the new law would replace.

"Access to consumer credit is very important for people on low wages.

Business is telling us that products with very small sums will not be offered any more," said the Bavarian MEP.

Consumer Protection Commissioner David Byrne wants to harmonise the current hotchpotch of rules governing consumer credit and loans, but Würmeling questions whether this is necessary or desirable.

"I don't think it is necessary to apply the same rules everywhere because there are enormous differences in market products, consumer culture, administration and so on."

He argues that requirements for lenders to produce a variety of interest rate calculations to ensure clients take out the correct product could pose too much of a burden on some firms.

"There has to be proper information, but there is a risk, if you impose too much, that the consumer is going to be more confused," he added.

In addition, the requirement to abide by a principle of 'responsible lending' could lead firms open to law suits from indebted customers claiming they should not have been lent the money in the first place, he warns.

Würmeling believes the draft law could also have unforeseen effects on the market for used cars because banks offering car loans would in future be jointly liable, along with the dealer, for any faults that develop on vehicles purchased this way.

In such circumstances, banks may well pull out of the market, making it far harder to buy a second-hand car. The law could even hit the EU's prospects for economic growth, he fears: "If it creates big difficulties to get credit it would have a macro-economic effect by slowing consumption."

A controversial new directive which is supposed to protect the rights of the poor will actually result in them being denied access to credit and loans, the MEP leading Parliament's scrutiny of the law has warned.