MEPs blast EU consumer credit proposals

European commission proposals on consumer credit have been heavily criticised as adding nothing but costs and red tape by a pair of senior MEPs.

“I don’t think this is a good piece of legislation,” said Kurt Lechner, parliament’s rapporteur on the commission proposal.

He was speaking on Wednesday at a parliamentary hearing in advance of ‘trialogue’ discussions with the council and commission on Thursday.

The EPP deputy went on. “Legislation leads to increased costs and therefore higher interest rates. Nothing’s been solved. You’re looking at a placebo here.”

Lechner’s colleague and British MEP Malcolm Harbour said that the almost 200 amendments parliament has made to the proposal are “probably unprecedented” and indicate poor drafting.

However, he did add that the proposal is now “workable” and said that while the legislation would not greatly affect the way business is done in the UK, it would provide a foundation upon which other member states can build.

“Overall, we’re not expecting huge changes to existing legislation [in the UK] because all are based on what’s already in place in the UK.

“The underlying question is whether [changes] would have happened in any case without going through the rather long-winded process we have here.”

The process was begun in 2002 when the commission released what Lechner calls an “abhorrent” proposal to harmonise EU consumer credit law. It was rejected on its first reading in parliament, modified and resubmitted by the commission in 2005, and is now going through its second reading.

The parliament’s internal market committee has adopted a position on the text, but it must now reach agreement with EU ministers before next week’s plenary sitting in Strasbourg.

The most contentious articles in the draft directive concern early repayment, establishing base and maximum amounts between which the directive should apply, and consumer access to pre-contractual and contractual information.

Parliament wants to put a cap on the amount of compensation a lender can claim for early repayment at not more than one per cent of the amount repaid early.

“The most honest solution would seem to be to completely delete the provisions on compensation, thus leaving the matter to the discretion of member states,” Lechner writes in his report.

The European consumers’ association (BEUC) has predicted that under the directive as it stands, consumers could be left with no rights of early repayment at all, and calls on parliament to be more rigorous in its assessment of the text.

“We have been waiting for five years for legislation to put an end to the numerous problems which consumers are facing on a daily basis. Unless MEPs change their approach, this directive will prove to be useless; worse, some of the best national consumer protection measures could even be removed,” said BEUC’s director general Monique Goyens.

The maximum rate finally agreed by parliament on the scope of the directive is €75,000. But again, Lechner is sceptical about the base amount, set at €200.

“We want to give national legislators more freedom as well as ensure harmonisation,” he said. “This is going to affect even the cheapest TVs.”

When it comes to the consumer right to pre-contractual information, Lechner is adamant.

According to parliament’s own study, he explained, too much information leads to confusion rather than enlightenment, particularly among inexperienced consumers.

“For Germany it will mean an awful lot more red tape,” Lechner said, adding that his country places no requirement on lenders to provide lengthy explanations to consumers when they take out a loan.

“Increased regulation does not automatically mean better consumer protection,” he said.

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