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Can the CCD achieve its laudable aim? Back  
The Consumer Credit Directive seeks to harmonise key aspects of the consumer credit markets of the 25 European Union Member States to facilitate the creation of an integrated credit market. However, the current proposal raises many concerns from both the industry and consumer perspective, writes Louise O’Mahony.
The European Commission wants to update the 1987 Directive on consumer credit, which the European Commission believes has been distorted through national variances. The new Consumer Credit Directive (CCD) has been developed with the laudable objectives of creating an internal EU market for credit, while enhancing consumer protection.

The modified version of the CCD presented by the Commission in October 2005 is a consolidation of the extended modification of the 2002 draft Directive with more than 150 amendments issued by the European Parliament in April 2004. The CCD is expected to be sent back to Parliament by the Finnish Presidency for approval before the end of the year, indicating an implementation date some time in 2009, with a two-year time period allowed for transposition.

The October 2005 modified proposal has some substantial improvements, most noticeably the removal of mortgage credit from its scope and the reduction of ceiling for loans from ?100,000 to ?50,000, but concerns remain.

The Irish Bankers Federation (IBF) believes that the CCD cannot achieve its objectives of an internal market for consumer credit. This is because of its unintentional consequence of a more bureaucratic process for even relatively small amounts of credit and the probability that lenders will exercise increased caution in the face of possible liability, precipitated by provisions such as responsible lending and the duty to advise.

IBF concerns - shared by the Department of Finance - include the fact that consumers can no longer waive their right to a ‘cooling off’ period and the fact that the standard advertising requirements are so complex as to render advertisements for credit ineffective, particularly advertising on television and radio - crucial channels for new entrants.

Harmonisation or mutual recognition?
The CCD aims to harmonise certain aspects of the consumer credit business and make it possible for consumers to properly assess credit offers from institutions in different countries by making key influences, such as advertising and pricing, directly comparable. However, the 25 Member States have vastly different types of banking system and practices.

To facilitate the harmonisation of potentially conflicting systems, the CCD introduces the concept of Mutual Recognition, which would allow lenders based in other EU Member States to lend to Irish consumers under home supervision. This would apply to the provisions such as right of withdrawal, responsible lending, duty to inform, linked credit agreements, early repayment and over-running of credit limits. However, IBF is concerned about the way in which harmonisation will pay off against Mutual Recognition.

The banking industry and most Member States would welcome a Regulatory Impact Assessment of the draft Directive so that they may consider the implications of the harmonisation and mutual recognition provisions for industry. IBF shares the CCD’s aspiration that the ‘development of an internal market in credit will increase the competitiveness of EU creditors by enhancing competition and promoting product innovation’. However, for this to become a reality, it is vital that consumer credit is considered in terms of the EU’s overall policy on financial services and not just as a separate consumer protection issue. In this context, it would be gratifying to hear discussion at Council level of the role of the current CCD under the Financial Services Action Plan and the White Paper on Financial Services Policy 2005–2010.

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