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31 december 2005

New draft directive on consumer credit

After three years of debate, the European Commission presented its amended draft directive on consumer credit in early October 2005.


Indeed, European banks and manufacturers had opposed the initial draft which they felt threatened the development of the consumer credit market - an important consideration since this very large market (over 900 billion euros in outstanding consumer credit in 2004) which plays a key role in enabling people to finance their personal projects is a key driver of economic growth.

Bankers still deem the draft to be inadequate

This new draft directive is more balanced and therefore more realistic for French banks which operate in a regulatory environment that is already quite strict. Moreover, it avoids the negative effects that could have resulted from the maximalist draft proposed in 2002. However, the complex combination of common harmonised rules, national consumer laws and mutual recognition now proposed will complicate cross-border lending and could also distort competition to the disadvantage of banks that operate in countries that offer a high degree of consumer protection, such as France.

Despite the Commission's announcement of a directive based on targeted full harmonisation, French bankers feel that member states still have too much leeway. Although the new draft will no doubt have less of a negative impact on domestic consumer credit activity than the initial draft, it will not enable the construction of a unified European market for consumer lending. This is why several aspects of the draft directive should be revised.

Some indispensable improvements

Given this situation, the FBF, in collaboration with various European lending trade groups, will be working hard throughout 2006 to have both the European Council and Parliament improve this draft directive. Efforts will focus on :

  • strengthening the full harmonisation of specific rules to prevent competitive distortions between lenders, while making sure not to hinder cross-border lending;
  • changing specific measures that are still deemed unfavourable by the banking industry. This includes, in particular, the reduction of the 14-day cooling-off period, which appears to be too long (particularly if it is suspensive), and the exclusion of all unsecured property loans, which currently fall within the scope of the directive.


September 11, 2002: The European Commission issues its first draft directive.

April 2004: Parliament makes significant changes to the draft.

October 7, 2005: The Commission issues an amended draft.

November 15, 2005: The Commission presents its proposed directive to ECOFIN.

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