Parliament approves consumer-credit rules

MEPs yesterday (16 January) adopted new rules on consumer credit, paving the way for borrowers to shop across borders for personal loans.

The consumer credit directive, as approved in second reading, will harmonise loan conditions across the EU, setting common standards in areas such as pre-contractual information and the calculation of interest rates. It also covers cancellation terms and early repayment rights.

The directive was subject to intense negotiations, with eleventh hour disagreements between political groups on compensation payments for early repayment of loans threatening to scupper the deal.

German centre-right MEP Kurt Lechner, who drafted Parliament’s report on the directive, wanted banks to be allowed more discretion in setting compensation fees. In the end, it was agreed that compensation should be capped at 1% of the outstanding loan, with member states deciding whether banks should be allowed to request further penalties.

Currently, the market in cross-border loans represents a mere 1% of the total market, worth €800 billion annually. Credit interest rates vary significantly, from 6% in Finland to more than 12% in Portugal.

Meglena Kuneva, the European commissioner for consumer protection, said: "At the moment, trying to compare different credit offers across the European market is like trying to compare apples and pears. This is bad for competitive business and denies consumers more choice and better prices."

MEPs yesterday (16 January) adopted new rules on consumer credit, paving the way for borrowers to shop across borders for personal loans.