Sergio Beristein reports from Brussels on legislative wrangling over how liberalised the consumer credit market should be.

According to an EU draft of the Consumer Credit Directive, obtained by The Banker a paragraph has been added that promotes a free market.

Although the European Commission endorses many of the 153 amendments by the European Parliament, the draft, which is due to be adopted in the next few weeks, now includes a new liberal provision that may fuel a heated debate in the European Parliament: it explicitly prohibits member states from restricting the activities of creditors established in other member states.

The directive, which is under negotiation among commissioners, promotes cross-border consumer credit and adopts a more moderate position towards the creditor.

Although, the added prohibition is good news for creditors that want to extend their business across borders, it may be politically sensitive for the European Parliament. “We have already seen the political cost that the EU had to pay when the Service Directive was blamed for stealing jobs by introducing the concept of country of origin and enforcing full harmonisation,” says an analyst.

However, in the draft, the Commission seems to have taken note of the European Parliament’s amendments by limiting the scope of the text and by giving more rights to creditors.

The draft excludes mortgages, giving mortgage lenders a break – at least until a more detailed green paper, announced in the draft, is released later this year.

But, even for those within the scope of the directive, the scenario is less worse than before. The draft allows creditors to charge an indemnity for early repayment, introduces new thresholds and scraps the idea of a central database of default borrowers.

Indemnity fees

Although borrowers will have a right to pay their debts early, creditors will be able to charge them special fees. However, the text clearly specifies that the charge for early repayment should be only a fair and objective indemnity directly linked to the cost of early repayment.

The threshold of a €100,000 credit will exclude bigger loans from the scope of the directive. Loans of less than €300 will be subject to less requirements, specifically the proviso to release a considerable amount of detailed information. Although responsible lending still appears in the text, creditors will not be obliged to consult a national database of default lenders, as stated in the initial proposal. Instead, it will be up to the member states to decide whether they want to have a national database.

Markos Kyprianou, Commissioner for Health and Consumer Protection, seems to promise a more moderate text than his predecessor, who refused to go back to the drawing board. Mr Kyprianou is trying to secure agreement from all sides of the round table of commissioners before this text is officially presented for adoption.

Although the text has already been scrutinised by all internal services of the Commission, Mr Kyprianou is still discussing the bill with other commissioners.

Spirit of better regulation

The directive is being discussed inside the Competitiveness Group of Commissioners, led by Günter Verheugen, Commissioner for Enterprise. He has raised concerns that the bill should respect the principles of his policy of better regulation.

The Commission had no comment on the draft but, according to Commission spokesman Philip Tod: “The aim will be to facilitate agreement in the European Parliament and Council by taking into account the concerns raised in the first reading of the Parliament, the industry and the Council.

“We want to consolidate a number of changes into one text to facilitate agreement.”

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