The Consumer Credit Directive revamped - Part 2

By Catherine Formosa & Kelly Cini

Catherine Formosa is a Senior Associate and Kelly Cini is a Trainee Advocate, both within Ganado Advocates’ Banking & Finance Team.

Enforcement proceedings should be seen as a last resort for both creditors and consumers and against this backdrop, the CCD II requires creditors to exercise reasonable forbearance measures and make attempts to resolve the situation through other means. CCD II proposes that forbearance may include extending the term of the credit agreement, changing the type of the credit agreement, partially or totally deferring payments of instalments for a period, reducing the borrowing rate or the total or partial refinancing of the credit agreement.

In addition, Member States may allow creditors to impose charges on consumers who default on payment and in doing so they may also require that such charges are no greater than necessary to compensate the creditor for costs which it has incurred due to the default. Additionally, the national legislator is also given discretion to decide whether to allow creditors to impose additional charges on the consumer in the event of default.

However, if such a practice is allowed, Member States must necessarily put in place caps on those charges. Although this remains an area where leeway is given to the Member States to shape their laws relating to arrears, default and forbearance and creditors also have considerable discretion, creditors will arguably need to revisit their forbearance policies as well as their practices vis-à-vis a defaulting consumer.

Measures against costly lending

Member States are obliged to introduce measures aimed to effectively protect consumers from excessively high borrowing rates, annual percentage rates of charge (“APR”) or total costs of credit. the Revised Directive proposes caps on borrowing rates, caps on APRs as well as prohibitions or limitations regarding specific charges or fees as ways to achieve this on the lines of what is already happening in other jurisdictions. Notably, this is left to the discretion of the Member States and therefore creditors and consumers alike will need to await the approach which will be taken by the local legislator on such a sensitive matter.

Additional consumer protection measures

A Prohibition of Discrimination: Creditors must not discriminate against consumers legally resident in the Union on ground of their nationality or place of residence, or on other grounds of discrimination set out in the Charter of Fundamental Rights of the European Union. This does not exclude the possibility of offering different conditions for accessing credit where those divergent conditions are duly justified by objective criteria.

Advertising: The rules on advertising are being considerably broadened by CCD II and there is clear focus on how these rules should apply in the context of digital advertising. For instance, the preamble to CCD II makes it clear that the standard information required in an advert should be shown upfront and saliently, in a clear way and in an engaging format and adapted to take into account the technical constraints of certain media such as mobile telephone screens. Temporary promotional conditions, such as a ‘teaser’ rate with a lower borrowing rate for the initial months of the credit agreement, should be clearly identified as such. Consumers should be able to see all essential information at a glance, even when they watch it on the screen of a mobile telephone.

A Prohibition of Tying Practices: Tying practices where a creditor sells a credit agreement in a package with other distinct financial products or services and does not make the credit available to the consumer separately are, subject to certain exceptions, prohibited by the Revised Directive.

“The Right to be Forgotten” for Cancer Survivors: Life insurers will be required not to use personal data concerning consumers’ cancer diagnoses for the purpose of an insurance policy related to a credit agreement after a period following the end of the consumer’s medical treatment. Such period (which is to be set by the Member State) shall not exceed 15 years.

Next steps and concluding remarks

The Revised Directive was published in the Official Journal of the European Union on the 30 October 2023 and came into force on the 19 November 2023. Member States have until 20 November 2025 to transpose CCD II, with the relative national measures to apply from 20 November 2026. While the Revised Directive goes a long way and introduces a wide array of new measures aimed at protecting consumers, it is equally true that the extent of its effectiveness will depend to a considerable extent on how certain discretions will be implemented by each of the Member States.