The EU banking industry must once again gear itself for yet more regulatory measures being hurled its way. In the wake of a barrage of a number of other regulatory measures ranging from those dealing with depositor guarantee schemes to capital requirements and consumer credit, the European Commission has now deemed it expedient to seek to regulate the home loan sector in order to ensure that consumers are also well protected when entering into a mortgage agreement.
Despite the considerable size of the EU mortgage market as well as the importance of a home loan to most consumers, there is to date no EU legislative framework in place which regulates this product. The main aim of the law that the Commission has recently proposed is to ensure that all European consumers who would like to take out a home loan, in whichever member state they might be, are adequately informed about all the possible risks of entering into such a credit agreement.
The proposed law throws the onus on all credit institutions and credit intermediaries offering home loans to make general information available at all times on the range of the products that they offer. They are also obliged to provide personalised information to the consumer through a European Standardised Information Sheet or so called “ESIS”. This will allow consumers to compare mortgage conditions from different providers. Borrowers will benefit from an EU-wide harmonised annual percentage rate of charge which will also facilitate the comparison of similar products offered by different providers.
Home loan providers must assess the consumer’s ability to repay based on information provided by the borrower himself. Indeed, the eradication of irresponsible credit market risks may be said to be one of the primary objectives of the proposed law. In terms of the proposed law, lenders are obliged to conduct stringent credit checks on the persons who are seeking to take out a home loan. The proposed rules maintain that a negative creditworthiness should indicate to the creditor that the consumer is unable to afford the credit and therefore, in such circumstances, the creditor should not grant the loan.
The proposed directive asserts that borrowers must be entitled to repay their credit before the expiry of the credit agreement, subject to certain conditions to be determined by member states themselves. Member states will determine the eligibility criteria, the conditions for exercising the right and the existence, level and method of calculating any compensation payable to the lender in order to invoke the right.
The new law also introduces certain requirements for the advertising of mortgage credit. Wording that might create false expectations for a consumer regarding the availability or the cost of a credit will be prohibited. The European Commission is insisting that these newly proposed rules are all about ensuring responsible lending and borrowing throughout Europe and re-instating consumers’ confidence in the financial sector. EU-wide harmonised rules ought also to facilitate cross-border activity both from the lending and borrowing side in particular because of the fact that lenders are, in terms of the new rules, entitled to have cross-border access to credit databases.
These measures, which possibly will in the near future regulate the granting of home loans in Europe, are nothing new to Maltese banks which have had to abide by stringent national rules regulating home loans since 2005. This means that Maltese consumers have long been afforded the protection that the Commission is now seeking to provide on an EU-wide basis.
Indeed, the fact that Malta has not, even in the face of financial turmoil, experienced the same housing bubbles which have emerged in a number of other member states, is clear proof of the fact that responsible lending and borrowing has long been an established practice in our country. A feather in the cap of Maltese regulators, Maltese banks and Maltese consumers!
mariosa@vellacardona.com
Dr Vella Cardona is a practising lawyer and a freelance consultant in EU, intellectual property, consumer protection and competition law. She is also a member of the National Commission for the Promotion of Equality.