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Comment on Gibbons and Schwartz by Bob Schmitz
Gibbons and Schwartz have suggested that EU Member States establish a 10-day waiting or reflection period that would begin after borrowers receive a binding offer from a lender. During this waiting period, the money borrowed could not be used unless the consumer made an explicit decision to get the money earlier. This right would complement the 14-day cooling-off period proposed by the European Commission and endorsed by the EU Council of Ministers’ Common Position of 21 May 2007.

France’s current legislation on consumer credit already contains a waiting period in addition to the cooling-off period. When proposing a credit, lenders operating in France are obliged to submit a binding offer to the consumer with a 15-day reflection period. After acceptance of this offer, the consumer then benefits of a 7-day right of withdrawal.

May I express, however, my doubts about the value of such a waiting period and warn against some legal misconceptions. To start with, however, I fully agree with the suggestion that the withdrawal “ right is rarely used because decisions to borrow money are closely tied to decisions about how to use the money” such as to purchase a good or refinance previous loans. However, the paper incorrectly suggests that “in cases where the credit is formally tied to a purchase of a good or service – for example when a loan is made by the seller of the good – the Directive allows the consumer to withdraw from both contracts…”. Unfortunately, this is not true. Recital (9) of the Common Position does not foresee such an EU-wide harmonized rule, but leaves this to individual Member States. Our experience with consumer litigation relating, for instance, to the purchase of cars financed by credits obtained via the Luxembourg supplier from Belgian credit intermediaries, shows the tricky problems arising from the differences in national law.

In my view, it is highly important to stipulate unambiguously for the whole EU that the withdrawal from the credit contract leads automatically to the cancellation of the purchase contract of the linked good or service without any penalty for the consumer.
I advocate, therefore, that priority lobbying should be on achieving such a common rule across Europe. The second reading of the consumer credit proposal before the European Parliament offers an excellent opportunity for adopting such a rule for the whole of Europe.

The above is only a brief summary of the Schmitz comment. Please see the attached document for the full text.

ID: 39996
Author(s): Saul Schwartz
Publication date: 04/08/07

Created: 04/08/07. Last changed: 29/08/07.
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