The Consumer Credit Directive

European Commissioner for Health and Consumer Policy Tonio Borg, together with Social Dialogue, Consumer Affairs and Civil Liberties Minister Helena Dalli, recently launched an information campaign to generate awareness on the Consumer Credit Directive, which came into force in June 2010 and protects consumers when purchasing a loan.

The directive gives consumers the right to repay the loan before its due date, but they may be required to pay costs specified in the credit agreement

The main purpose of the campaign, which is mainly aimed at the younger generations (aged 18 to 35), is to make consumers who are about to borrow money more aware about their legal rights before signing credit agreements. The campaign’s slogan is Need Credit? Don’t Just Sign. You Have Rights.

This awareness campaign, which will last a whole year and is also being launched in three other EU member states – Spain, Ireland and Cyprus – focuses on five legal rights consumers are entitled to under the directive.

The first is clear and transparent advertising. Credit advertising must indicate, in an unambiguous way and through an example, the credit’s interest rate and its total costs. This information should enable prospective borrowers to better compare different credit agreements.

The second right consumers have is to be given all the information about the credit agreement before signing. This information should be provided in a simple and transparent way. The directive provides a standard format that clearly states what and how the information on the credit agreement should be passed on to consumers.

Consumers are also entitled to a written copy of the credit agreement. This is the third right being focused on by the awareness campaign. The written document must include all details about the credit taken, the cash price and the total price the consumer would pay for the credit, together with a statement of the annual percentage rate (APR).

The APR should not only include the amount of interest to be paid on the credit taken, but also any charges, commission and other costs incurred to obtain the credit.

The fourth right is that of withdrawal. Consumers have 14 days, starting from the date they sign the agreement, during which they can withdraw from it. Should consumers exercise their right of withdrawal, they must inform the creditor in writing before the 14-day deadline expires. When such a decision is taken, the consumer is to repay the creditor the credit provided and also pay interest accrued on it. This right of withdrawal does not apply to credit agreements which by law are required to be concluded before a public notary.

The fifth right is that of early repayment. The directive gives consumers the right to repay the loan before its due date without incurring unreasonable penalties. They will not be penalised for exercising this right, but may be required to pay any fair and reasonable costs specified in the credit agreement.

The regulations specify the maximum amount of compensation the creditor may charge consumers when the credit is paid before the agreed termination. This unless the creditor proves that the loss suffered from early repayment exceeds the amount determined by law.

The credit agreements excluded from the obligations of the directive are those which amount less than €200 or more than €75,000.

Consumers need correct and clear information to make informed buying decisions. When purchasing credit, consumers especially need full information on the cost of the credit facility. This would allow consumers to better compare different kinds of credit and find the most suitable credit package. Furthermore, transparen­cy ensures effective competition in the market of providing credit to consumers, hence a wider choice for consumers.

Speaking at the campaign launch, Dr Dalli welcomed the Commission’s campaign on consumer credit in Malta. She said this would help consumers better understand their rights and feel more confident when taking out credit. She added this was particularly important in the current economic climate as credit products became more and more complex.

Dr Borg said raising consumers’ awareness about their rights as EU citizens enabled them to make more informed choices. He said the EU was fully aware of their struggle with financial matters.

He said the Commission’s intention is to encourage consumers to look and ask for their rights and subsequently compare and choose the product that best suits their needs.

For details visit: http://ec.europa.eu/kreditu-ghall-konsumatur .

odette.vella@mccaa.org.mt

Odette Vella is senior information officer, Office for Consumer Affairs, Malta Competition and Consumer Affairs Authority.