EU clashes over consumer credit

European parliament deputies have strongly criticised proposed new rules on consumer credit, ahead of a key plenary vote.

Parliament’s rapporteur on the directive, Kurt Lechner, said on Tuesday during a parliamentary debate that manoeuvring by national governments had reduced the effectiveness of the proposals.

"Instead of looking at a practicable European approach, state representatives have come up with special rules and defended them. As a result we have a lot of red tape and consumers won’t benefit from it, with a flood of information that doesn’t help them."

He added that national legislators have introduced "big additional costs" to the directive.

The EU wants to fully harmonise the market in consumer credit, so that consumers receive the same information before and during their credit agreements and are subject to the same interest rates across the 27-nation bloc.

However, rules in member states vary, with consumer credit interest rates fluctuating from around six per cent in Finland to over 12 per cent in Portugal.

In a debate in Strasbourg, MEPs had mixed feelings about the commission-backed directive, which is now on its second reading after being rejected by parliament on its first.

Senior UK MEP Malcolm Harbour said, "The problem we’ve had with this directive is that the consumer credit market across the EU is at very, very different stages of development. The idea of maximum harmonisation would mean that consumers in [some] countries would be disadvantaged."

The consumers’ organisation, BEUC, has said that their key demand for the directive is the right to early repayment.

The issue is a thorny one because the commission, parliament and council disagree on the amount of compensation for lenders if a consumer does manage to pay back their loan early.

According to Monique Goyens, BEUC director general, "Potential improvement would be neutralised if, regarding early repayment, the possible compensation of lenders is not transparent, known by the consumer at the time of taking out the credit and exclusively based on the actual costs."

But commissioner for consumer protection Meglena Kuneva defended the directive as "a very important moment for Europe’s 500 million consumers".

She said that the internal market was failing consumers due to the variance in credit rates in different member states.

"Clearly, the internal market is not functioning," she told MEPs on Tuesday.

"Clearly competition at EU level is not functioning.”The result is that consumers are being denied choice and more competitive offers and business is being denied opportunities to access new markets."

The commission wants to see member states calculate the annual percentage rate of charge using the same formula across the EU, and to provide a standard list of information to customers taking out loans.

However, German Green MEP Heide Rühle argued against a European standardised system: "There is no proper study, despite big differences in financial cultures within the member states.

"There should have been much more leeway for the member states instead of full harmonisation. We should have had minimum harmonisation."

Lechner agreed, saying that the proposal in its current form doesn’t offer a single market to consumers.

"National legislation must have room for manoeuvre so that it can be flexible when it comes to protecting citizens and be able to deal with new problems rapidly.

"A bunch of provisions doesn’t give that protection. Follow-up assessments are necessary."

He said that he wanted to set the minimum threshold from which the directive would apply to €500 (it is currently at €200) and to reduce bureaucracy, without which "the good idea in this directive, to open the single market to consumers and give them a bigger choice, would not be achieved".

"It is clear we all share the same goals," said Lechner. "The question is whether we will achieve these goals with this directive."

Parliament will vote on the plans on Wednesday.

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