Consumer Credit Directive

Department of Finance

Consultation Paper

March 2009

The Directive on credit agreements for consumers which requires to be transposed by 11 June 2010 was published in the Official Journal of the European Union L133 dated 22.5.2008 and is also available at:

http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2008:133:0066:0092:EN:PDF

1.    Purpose of this consultation

The purpose of this consultation is to invite submissions on the transposition of Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers and repealing Council Directive 87/102/EEC (the Consumer Credit Directive). The consultation will inform the Department’s position with regard to:

·        National discretions relevant to the transposition of the Consumer Credit Directive i.e. where the Consumer Credit Directive allows Member States discretion as to whether or not to apply a particular provision of the Directive.

·        Other issues

It should be noted that the transposition will have an impact on certain national legislation/codes. Comments on such impacts will be welcome.

2. How to respond to the consultation

Submissions are welcome up 30 April 2009. Questions and observations are welcome on any aspect of the Directive’s transposition, and not just the issues identified in this consultation paper. These should be sent electronically to the email address below or posted to:

Mary Carrick

Assistant Principal

Consumer Credit Legislation

Department of Finance

Upper Merrion Street

Dublin 2

Ireland

Email submissions and any queries in relation to this material should be made to:

-          ccd.consultation@finance.gov.ie

Phone queries to

Mary Carrick Phone: 353 (0)1 604 5502

Mary Farrell Phone: 353 (0)1 631 8139

It is intended to make all submissions available on www.finance.gov.ie after the deadline for receiving the submissions has passed. Commercially sensitive or personally sensitive material should therefore not be included in your submission. If you do include such material you should clearly highlight it so that reasonable steps may be taken to avoid releasing it into the public domain. Although every effort will be taken not to release such material publicly a guarantee cannot be given. It is important to be aware that unless you clearly identify any commercially or personally sensitive information, you are making a submission on the basis that you consent to it being made available in full on the website. Efforts will be made not to place on the website any material that is potentially libellous.

3. What is the Consumer Credit Directive?

The Directive establishes a harmonised legal framework for the provision of consumer credit in the European Union. It replaces a 1987 Directive (87/102/EEC), which laid down minimum rules for consumer credit agreements within the EU and which was transposed into national law by the Consumer Credit Act, 1995. Divergences in Member States’ transposing legislation for the 1987 Directive impeded the goal of harmonising the consumer credit sector into a single internal market and this Directive is aimed to address this.

4. Brief Overview of the Directive

Subject & Scope of the Directive

The Directive applies to agreements covering credit for consumers and defines a ‘credit agreement’ as:

an agreement whereby a creditor grants or promises to grant to a consumer credit in the form of a deferred payment, loan or other similar financial accommodation, except for agreements for the provision on a continuing basis of services or for the supply of goods of the same kind, where the consumer pays for such services or goods for the duration of their provision by means of instalments.

It defines a ‘consumer’ as a natural person who, in transactions covered by this Directive, is acting for purposes which are outside his trade, business or profession

It applies only to credit amounts ranging from €200 up to €75,000 (both figures inclusive). Certain other types of credit agreements are excluded from the scope of the Directive, including mortgage credit agreements, hiring and leasing agreements, overdraft agreements where the credit is to be repaid within one month; deferred payment agreements not attracting any interest; and pawn broking agreements (see Article 2.2).

The Directive is divided as follows:

·        Recitals (1) to (51) setting out the background rationale to the Directive and a commentary relating to individual articles in the Directive

·        Chapter I: Articles 1-3, setting out the subject matter, scope and definitions for the Directive

·        Chapter II: Articles 4-8, information and practices preliminary to the conclusion of the credit agreement

·        Chapter III: Article 9, Database access

·        Chapter IV: Articles 10-18, information and rights concerning credit agreements

·        Chapter V: Article 19, annual percentage rate of charge

·        Chapter VI: Articles 20 and 21, Creditors and Credit Intermediaries

·        Chapter VII: Articles 22-28, implementing measures

·        Chapter VIII: Articles 29-32 transitional and final provisions

·        Annex I: formula and assumptions for the calculation of APR

·        Annex II: standard European Consumer Credit Information

·        Annex III: European Consumer Credit Information for overdrafts, consumer credit offered by certain credit organisations and debt conversion

5. National Discretions in the Consumer Credit Directive

Most of the Directive’s provisions must be transposed on a fully-harmonised basis. This requires Member States to implement these provisions on a consistent basis.

However, there are a number of provisions in the Directive to which full harmonisation does not apply and Member States are given discretion as to whether and how to apply these provisions.

Discretion 1 - Application of the Directive to organisations with a social character (Article 2.5)

The Directive recognises that the provision of credit by institutions which fulfil certain conditions should afford an adequate level of consumer protection without placing an excessive burden on these institutions. The criteria as set out in Article 2.5 require that the institution:

(a) is established for the mutual benefit of its members;

(b) does not make profits for any other person than its members;

(c) fulfils a social purpose required by domestic legislation;

(d) receives and manages the savings of, and provides sources of credit to, its members only; and

(e) provides credit on the basis of an annual percentage rate of charge which is lower than that prevailing on the market or subject to a ceiling laid down by national law;

And requires that membership of an institution is restricted to persons on the basis of their geographical location or by virtue of their employment. This is known as the ‘common bond’. Members States may choose to apply limited provisions to such organisations as provided for in Article 2.5.

Credit Unions may be an example of such an organisation.

Also certain organisations may qualify for an exemption from the application of the Directive. The Directive gives Member States the option of fully exempting credit agreements concluded by certain organisations from its scope where:

- the total value of all existing credit agreements entered into by the organisation is insignificant in relation to the total value of all existing credit agreements in the Member State in which the organisation is based

and

- the total value of all existing credit agreements entered into by all such organisations in the Member State is less than 1% of the total value of all existing credit agreements entered into in that Member State.

Bodies that fall under the remit of the Registrar of Friendly Societies may be such organisations.

Consultation Question 1: Is there a need to provide for this discretion in transposing the Directive? Views on the application of the Directive whether it be full, limited or exempt as provided for in Article 2.5 are welcome.

Entities that consider that they meet the criteria provided for in Article 2.5 are invited to highlight their respective views on the application of the Directive and whether they wish this discretion be availed of and to what extent.

Discretion 2 - Application of the Directive to credit agreements where the consumers in certain cases is already in default of the initial credit agreement (Article 2.6)

The Directive provides that where a consumer is in default of an existing agreement, a restructured credit agreement can be exempted from certain provisions of the Directive provided that

such arrangements would be likely to avert the possibility of legal proceedings concerning such default and

the consumer would not thereby be subject to terms less favourable than those laid down in the initial credit agreement.

Consultation Question 2: Is there a need to provide for this discretion in transposing the Directive? Views on the full application of the Directive to these types of credit agreements are welcome

Discretion 3 - Exemption of overdraft facilities from certain provisions relating to advertising, pre-contractual information and information in credit agreements (Article 4.2(c), 6.2 and 10.5(f))

Member States may decide to exempt credit agreements in the form of overdraft facilities where the credit has to be repaid on demand or within three months from the requirement to include an annual percentage rate of charge in advertising for such agreements, in pre-contractual information and in information included in credit agreements.

Consultation Question 3A: Is there a need to provide for this discretion in transposing the Directive by laying down in national legislation that an annual percentage rate of charge be displayed in advertising, be included in pre-contractual agreements and be part of the information in credit agreements for overdraft facilities described above?

Consultation Question 3B How would this requirement impact on Current Consumer Credit Act requirements (Section 21) in relation to advertisements governing overdraft facilities?

Consultation Question 3C Should the “representative example” referred to in the first paragraph of Article 4.2 be laid down in national legislation? Outline the advantages and disadvantages of so doing. How can it be ensured that the example would be fully representational?

Discretion 4 - Pre- contractual information (Article 5.6)

Member States may adapt the manner by which and the extent to which such assistance is given, as well as by whom it is given, to the particular circumstances of the situation in which the credit agreement is offered , the person to whom it is offered and the type of credit offered

Consultation Question 4 Should Ireland adapt the manner and extent by which adequate explanations are given to consumers and, if so, why and how? (Please provide examples of ways in which the manner and extent of adequate explanations would be adapted).

Discretion 5 - Right of withdrawal (Article14.2)

Article 14(2) - 14-day right of withdrawal may be reduced for linked credit agreements if limits in national legislation are already in place.

The discretion to reduce the right of withdrawal below 14 days in the case of linked credit agreements in Ireland does not apply. This is because the right of withdrawal for such agreements was not provided for in Irish legislation at the point of entry into force of this Directive. Therefore, in fact, Ireland does not have the discretion provided for in article 14.2 of reducing the 14 calendar days referred to in Article14.1.

Consultation Question 5 Does this discretion have any implication for the transposition of the Directive in Ireland?

Discretion 6 - Right of withdrawal (Article 14.6)

Credit agreements that are required by law to be concluded through the services of a notary may be excluded from the provisions of paragraphs 1-4 of Article 14 of the CCD (which relate to right of withdrawal)

Consultation Question 6 Is there a need to provide for this discretion in transposing the Directive as it appears that credit agreements are not typically concluded with the services of a notary in Ireland?

Discretion 7- Early Repayment (Article 16.4)

In the event of early repayment of credit the creditor shall be entitled to fair and objectively justified compensation for possible costs directly linked to early repayment of credit provided that the early repayment falls within a period for which the borrowing rate is fixed

Such compensation may not exceed 1% of the amount of credit repaid early, if the period of time between the early repayment and the agreed termination of the credit agreement exceeds one year. If the period does not exceed one year, the compensation may not exceed 0,5% of the amount of credit repaid early

 However, Member States have the discretion of providing that such compensation may be claimed by the creditor only on condition that the amount of early repayment exceeds the threshold defined by national law. That threshold shall not exceed EUR 10,000 within any period of 12 months (Article 16.4(a))

Consultation Question 7 (A) Is there a need to provide for this discretion in transposing the Directive?

Consultation Question 7 (B) As it appears Ireland does not have a threshold defined by national law should we define a threshold in national legislation (Note this will be subject to legal advice and the threshold shall not exceed €10,000 within any period of 12 months)? Please state the reasons for your view.

The creditor may exceptionally claim higher compensation if he can prove that the loss he suffered from early repayment exceeds the amount determined under paragraph 2 (Article 16.4 (b))

Question 7 (c) should the discretion under Article 16.4(b) be availed of and allow compensation in excess 1% and if so to what extent? Please respond in respect of the impact on the creditor and the consumer.

6. Other issues for consideration in transposition

Issue 1.

Linked credit agreements (Article 15.2)

Where goods or services covered by a linked credit agreement are not supplied fully, or are supplied only in part, or are not in conformity with the contract for the supply thereof, the consumer shall have the right to pursue remedies against the creditor if the consumer has pursued his remedies against the supplier but has failed to obtain the satisfaction to which he is entitled according to the law or the contract for the supply of goods or services. Member States shall determine to what extent and under what conditions those remedies shall be exercisable.

Consultation Question 8 To what extent and under what conditions should it be determined that the consumer can exercise remedies to pursue creditors where the pursuit of the supplier has failed to obtain satisfaction by the consumer?

Consultation Question 8A As Section 42 of the Consumer Credit Act 1995 already provides for the consumer to take proceedings against the creditor where he/she has exhausted other remedies do you consider that this existing piece of national legislation is sufficient to remove the requirement for Ireland to determine any further to what extent and under what conditions those remedies should be exercisable?

Consultation Question 8B Should we be more prescriptive in determining to what extent and under what conditions consumers can pursue remedies against the creditor than that which is provided for in Section 42 of the Consumer Credit Act 1995? If this is so, please provide suggestions.

Issue 2.

The Directive defines durable medium as follows:

“‘durable medium’ means any instrument which enables the consumer to store information addressed personally to him in a way accessible for future reference for a period of time adequate for the purposes of the information and which allows the unchanged reproduction of the information stored”

The main provisions in which a durable medium may be used relate to the supply of pre-contractual information and the conclusion of credit agreements.

The use of “another durable medium” when drawing up credit agreements is provided for in Article 10.1 of the Directive. The Consumer Credit Act ’95 requires that credit agreements be made in writing and signed by the consumer. The Act also imposes restrictions on the method of communications relating to credit agreements. There appears to be scope in transposing of the Directive to consider amending the Consumer Credit Act ‘95 to allow for the use of another durable medium in relation to credit agreements that fall under the scope of this Directive. Views on the making of such amendments are welcome.

Responses to consultation process