New Consumer Credit rules capture leasing

The European co-legislators, the European Parliament and the Council, are now taking the last, final steps adopting the new Consumer Credit Directive, which will replace the existing Directive dating back to 2008, following a lengthy multi-year process, initiated by the review of the current framework. The process has been closely followed by Leaseurope which has engaged with all concerned stakeholders setting out the industry´s views and concerns.

The final and formal adoption by the co-legislators will take place in September and October, but already in December of last year a preliminary political agreement was reached. However, due to strong disagreements between the Member States, further and lengthy negotiations were ultimately required on key issues, especially in relation to “Buy Now, Pay Later” products.  

The new rules, which should become generally applicable towards the end of 2026, bring leasing agreements, with the obligation or option to purchase, under the Directive. 

The revision of the existing Consumer Credit Directive forms part of the European Commission´s current consumer protection strategy, the New Consumer Agenda, adopted in 2020. The European Commission presented its proposal for a revised new Directive in the summer of 2021. The Commission was concerned that the existing rules failed to capture relevant developments in the market and consumers´ increasingly digital activities, not least “Buy Now, Pay Later” products and other short-term high-cost loans, and also failed to provide the relevant tools fighting over-indebtedness. The latter, coupled with a focus on vulnerable consumers, forms a key concern by the Commission were only further highlighted considering the COVID-19 pandemic. 

Under the new framework, the scope of the framework is therefore strongly enlarged, including also credit agreements under 200€ (and up to 100 000€), leasing agreements with an obligation or option to purchase goods or services, interest-free loans, as well as credit agreements with a shorter duration, i.e. up to three months, with only insignificant charges.  

The rules are also updated with reinforced rules on advertising and pre-contractual information. Providers will be required to ensure that the consumer has easy access to all required information and that they are informed about the total cost of the credit. Moreover, providers need to ensure that the information is provided in an adequate manner when credit is obtained through digital channels. Updated rules on advertising will require a warning to ensure that consumers are aware that borrowing costs money, and specific advertising, e.g. encouraging consumers to take out a loan by suggesting that this would improve their financial situation, will be prohibited. Member States may also prohibit, as illustrated examples and non-exhaustive, advertising which highlights the ease or speed of the credit process or that a discount is conditional upon taking up credit. 

While the Commission wanted the pre-contractual information to be provided at least one day in advance to the consumer, the new rules will simply require that the pre-contractual information is to be provided to the consumer ”in good time” before the conclusion of the credit agreement. 

More descriptive rules for the assessment of an applicant borrower will also be at hand, including a prohibition on the use of social media data in the process. A thorough assessment of the consumer’s creditworthiness shall be carried out to prevent irresponsible lending practices and over-indebtedness, but it is to be limited to what is necessary and be proportionate vis-à-vis the nature, duration, value, and risks of the credit for the consumer.  

An important limitation of the right of withdrawal is introduced under the Directive. The German interpretation of the existing rules, confirmed by the European Court of Justice, enabled a near eternal right of withdrawal providing for an unworkable application of the rules and provision of credit. The right will now be restricted to a maximum withdrawal period of 12 months and 14 days, if the consumer has been informed about the right, after the conclusion of the credit agreement even if the consumer has not received all information and contractual terms. 

Finally, the Commission also sought to introduce a concrete cap on interest rates, but, ultimately, it will be for the Member States on a local level to ensure relevant measures to prevent excessively high interest rates or total costs.