MEPs adopted new rules protecting consumers from taking on too much debt

Assessment of consumer’s creditworthiness

Caps on charges, to prevent abuse

Right to withdraw from a credit agreement with no reason within 14 days

Parliament held its final vote on measures shielding consumers from credit card debt, overdrafts and unsuitable loans.

The new directive on consumer credits (CCD), already agreed between Parliament and Council negotiators in December 2022, aims to make the credit markets function smoothly while ensuring a high level of consumer protection. The legislation that will cover credit agreements of up to €100,000, was adopted with 608 votes in favour, 8 against and 15 abstentions.

Creditworthiness assessment

Member states will require a creditor, before concluding a credit agreement, to make a thorough assessment of a consumer’s creditworthiness, in the consumer’s interest and to prevent irresponsible lending practices and over-indebtedness. The assessment should verify the capacity of the consumer to meet their obligations.

MEPs secured a measure that protects cancer survivors applying for credit for which an insurance is required, whereby they have the “right to be forgotten" after a relevant period of time so their former illness does not affect the insurance rates.

Consumer protection

Non-bank creditors and credit intermediaries (except micro enterprises and SMEs) will be subject to an admission process, and registration and supervision by national independent authorities.

Credit advertising should always contain a clear and prominent warning that borrowing money costs money. MEPs also succeeded in including measures, such as caps on charges, to prevent abuses and ensure that consumers cannot be charged excessive interest rates, annual rates, or charges on loans or the total cost of credit.

With overdraft facilities and credit overrunning increasingly common and expensive forms of credit, these financial products will be regulated to increase consumer protection and avoid over-indebtedness.

Right to withdrawal and early repayment

Member states will have to ensure that consumers have the right to withdraw from a credit agreement without any reason within 14 days. Consumers will have the right to early repayment and to reduce the total cost of their credit. Pre-contractual information should clearly specify how this compensation is to be calculated.

Quote

Kateřina Konečná (The Left, CZ), the lead MEP said: "The new consumer credit directive provides significant protection to people taking up loans. We count as our greatest success that cancer survivors will have "the right to be forgotten" as part of the new rules. Those who recover from cancer and apply for a loan for which insurance is required will not be discrimination against in their insurance conditions. We also made sure that advertisers will clearly warn consumers that borrowing money costs money and that the most harmful forms of advertising should be banned."

Next steps

The directives enters into force on the 20th day after its publication in the Official Journal of the EU. Member states will then have 2 years to adopt necessary laws and administrative provisions and 3 years to apply them.