Seminar on consumer credit regulations

The seminar on consumer credit regulations we referred to on May 22 and held last Monday was very well attended and worth reporting. This is why today I have decided to carry this report rather than feature cases involving consumer complaints. Although complaints are important, there is more to consumer affairs than complaints.

The seminar was chaired by Louis Cilia, permanent secretary at the Ministry for Competitiveness and Communications (MCC), who had led the discussions leading to the publication of these regulations.

In his opening address Minister Censu Galea said that such regulations are of interest to consumers and traders alike and, if a consumer is taking credit on the purchase of any goods, one obviously needs to know the implications and rights when purchasing on credit. Similarly, it is also important for traders to know their obligations when granting credit to consumers.

With a particular focus on the local adoption of these regulations, the minister stressed that, in the discussions that took place, the government's priority was to strike the right balance between consumers' and traders' interests. He added: "The consultation process involved, among others, the Consumers' Association, the Consumer Affairs Council, the Malta Bankers Association, and the General Retailers and Traders Union."

The minister believes that if consumer credit regulations were biased either in favour of businessmen or consumers, it would not be beneficial to the economy. He said: "If such regulations are biased in favour of businessmen, consumer confidence could decline and affect trade negatively, while if such regulations impose unnecessary burdens on businessmen, traders might be put out of business and this situation could make way for others to become dominant, and hence abuse their position."

He added: "Over the past years there has been much change in the types of credit available to, and used by, consumers. New forms of consumer credit have emerged and continue to develop. It is therefore necessary that the consumer receive adequate information on the conditions and cost of credit and on his obligations."

The minister emphasised that "to protect the consumer's economic interests, one needs to ensure that the consumer is provided with specified information about a particular transaction to be made - thus the consumer will be in a position to make an informed decision."

Marcel Pizzuto, director-general Consumer and Competition Division, stressed that the transposition of this Directive was not easy due to its impact on the local market. Among other issues, he focused on the lengthy discussions with all the various sectors concerned where, on one hand, the Consumer Affairs Council and the Consumers' Association were pressing for the highest level of consumer protection possible while, on the other hand, various market players affected by these regulations were maintaining that we should stick to the obligations under the present Directive and not go beyond them.

Mr Pizzuto added that these divergent positions were also the result of a new proposal adopted by the Commission in 2002 to amend the present Directive, which is currently being debated.

Dr Theresienne Bezzina, case officer (CCD), explained that credit means "not paying for your purchase immediately and the sum to be repaid is directly related to how long the borrower takes to pay". A credit agreement must be made in writing and the consumer is entitled to a copy within 10 working days of the signing. The agreement must contain a mandatory list of statements and information.

"An offer of credit must include a statement of the APR, which is an artificially constructed figure outlining the total cost of the credit to consumers as a percentage of the credit granted. This will help consumers decide from where to get credit. The APR includes not only interest but also any charges, commissions and other costs incurred to obtain that credit."

Dr Claire M. Calleja, senior legal officer (CCD), explained that the regulations allow the creditor and the consumer to agree on the terms of repossession of the goods sold in the event of the borrower's default on payments. The regulations however prohibit any clause in an agreement that would seek to limit the consumer's right to have repossession exercised through a court order.

Although the regulations prohibit repossession, where 70 per cent or more of the price of the goods would have been paid by the consumer, a creditor is not barred from attaching the goods sold by virtue of a warrant of seizure issued under court authority as the objects seized may be various and this does not amount to repossession.

Dr David Fabri (Malta Financial Services Authority) tackled the subject from a different perspective. He focused on "10 things that the new consumer credit regulations don't do". In the process he advised consumers not to raise their expectations too high, by reviewing a number of issues not addressed in the new regulations, including safeguards on bills of exchange. He expressed his hopes for improvements in the future and pointed out that, compared to the UK position, the Maltese regime was much softer.

Ray Watson from the UK Office for Fair Trading (OFT), director of Consumer Credit Policy at the OFT, was the guest speaker. He delivered two interesting papers: on APR and early settlement of loans.

On his last day in Malta, Mr Watson kindly made himself available to staff at the CCD and we bombarded him with questions to which he gave clear answers and explanations. At this point, on behalf of all those concerned, I must heartily thank Mr Watson.