Consumers to benefit from new consumer credit regulations

These regulations transpose Directive 2008/48/EC of the European Parliament which facilitates the emergence of a genuine internal market in consumer credit.

The regulations apply to agreements covering credit for consumers, where the total amount of credit is more than €200 and less than €75,000. It applies to loans on which interest is paid. However, there are some types of credit agreements which are exempt from the scope of the application of the Regulations.

Of great significance to the consumer is that these regulations, in line with the Directive, provide for the right of the consumer to withdraw from the credit agreement within 14 days of its conclusion without giving any reasons.

The Regulations also give the consumer the right to early repayment, subject to the right of the creditor to a fair and objectively justified compensation for costs directly linked to early repayment and so long as the early repayment falls within a period for which the borrowing rate is fixed. Of importance for the consumer to note here is that no compensation is due to the creditor for an early repayment which does not exceed €3000 within any period of twelve months.

The consumer is also entitled to terminate an open-end credit agreement free of charge at any time unless the consumer and the creditor have agreed on a period of notice.

Home loans fall outside the scope of the new regulations as for the time being these shall continue to be covered by the Consumer Credit Regulations 2005.

The regulations provide for the information that must be given to the consumer at the pre-contractual stage. Amongst the items to be specified are the type and the duration of the credit, the borrowing rate, the annual percentage rate of charge and the amount, number and frequency of payments to be made by the consumer.

The consumer is entitled, upon request, to be provided with a copy of the draft agreement free of charge. This gives the consumer the possibility to take away the information and, prior to concluding a credit agreement, consider the obligations and rights arising there from and particularly consider the cost of the credit. It also enables the consumer to compare offers and take an informed decision.

 Moreover, a creditor must provide adequate explanations to the consumer on the credit offered in order to enable the consumer to determine how the agreement may affect his economic situation.

The new regulations also make provision for the information that must be specified at the contractual stage. The agreement must be drawn up in writing or on a durable medium. During the term of the contract, consumers are entitled to be informed of any changes in the borrowing rate.

Less extensive information requirements, both at the pre-contractual and the contractual stages, are laid down with respect to overdrafts and specific credit agreements, so as not to excessively burden creditors whilst ensuring that an adequate level of consumer protection is still  maintained.