|CCD - No Early Repayment Fees! European Parliament should definitely rule out the introduction of fees that would only favour costly chains of Refinancing. The latest Amendments already give more power to the member states. They Consumer Credit Directive should entirely give up the failed maximum harmonisation approach in consumer debts.
|The group on the Internal Market and Consumer Protection of the European Parliament has now proposed some further changes to the present draft of a Consumer Credit Directive as it has been passed by the Council. Although in most they did not follow the Proposal of their rapporteur Lechner they left the misleading APRC, the maximum harmonisation as well as the many exemptions of the present draft unchanged.
This relates to a strategy where the Commission started with an unacceptable draft which then was gradually softened while finally the public discussion was successfully focussed on less important issues so that a draft which in total is superfluous at least hinders the national moves towards responsible credit in the future. This may already be enough for those suppliers who want to market subprime revolving small consumer loans across Europe with hidden kick back insurance provisions.
ALL BUT ONE OF THE CHANGES ARE TO THE DETRIMENT OF CONSUMERS
The Parliament does not seem to like any more consumer protection but is afraid that the industry faces too many restrictions, a fear which in the actual subprime credit crisis is not only ridiculous but dangerous for all.
While it wants to give the consumer an automatic right to be informed about the result of an inquiry into a database, none of the more important remaining pitfalls of this draft are remedied.
* No consensus will be reached on a unified European Annual Percentage Rate of Charge (as proposed in the 2002 draft and the Austrian proposal) which would include also those cost like insurance fees where banks circumvent the transparency rules pretending that consumers do not pay them but a third party while in fact the money flows back to the bank as a kick back provision or in the form of finance charges for the insurance premium.
*There is also no move to include leasing again by using an economic instead of a legal definition and
*maximum harmonisation will still cut deeply into national consumer protection law.
*Neither consumer protection nor the prevention of overindebtedness as it was in the 2002 draft have been put back into this Directive.
Instead the Internal Market Committee with its rapporteur Mr. Lechner (Conservatives) wants to exclude further
* consumer credit over 50.000 € instead of 100.000 € (the threat to a higher minimum seems to be banned),
* reduce information duties in the precontractual states,
*abolish the right to a binding offer where alone the true price of the credit could be identified,
*exclude even the information on such charges which are linked to the credit but not part of the "total cost of the credit to the consumer",
*exclude information duties for credit intermediaries if (in a vague definition) the creditor "in practice or in law" (a new European form of giving rights "in practice") assumes responsibility.
EARLY REPAYMENT FEES
The latest version of these fees which for most countries had been ruled out under the last Directive (as an MP wrote us) "moves away from maximum harmonization, leaving this to the law of Member States.It does however apply certain limitations where compensation can never be charged, and limits the amount, in order to protect cross border consumers."
The full text follows for clarity:
"2. The creditor may, according to the law of a Member State, be entitled to fair and objectively justified compensation for possible costs directly linked to early repayment of credit.
The compensation shall not exceed the amount of interest the consumer would have paid during the period between the early repayment and the agreed date of termination of the credit agreement.
This is still unsatisfactory. There is no need for early repayment fees and this is why there is also no need to a clause which limits it to such a vague ceiling like the "fair and objectively justied compensation for possible costs directly linked to early repayment fees." (Ammendmend 28) We do not need much fantasy to imagine this clause introduced into all national legislation arguing that otherwise foreign lenders would be kept out which can easily be taken as a pretext for DG Competition to intervene.
Especially the "limitation" to the amount of interest which would have been due for the unused time contains a real threat for consuemrs. Already in 1894 it has been ruled out in Germany that instalment companies could withdraw the credit but claim the interest. Interest should never be paid if no credit is offered, neither in the form of damages nor in the form of a contractual obligation neither by law. This iron rule "no credit no interest" for consumer credit should not be questiones by the EU who again falls far behind national standards.
In so far the Council's proposal that limited the amount to 1% of the residual value is preferable.
The IMCO rule is known in Germany from mortgage loans in Art. 490 al. 2 third phrase BGB. In this law mortgage lenders are allowed to those "damages that stem from early repayment" where a prepayment fee has been officially allowed which led to such early cancellation charges which amounted to up to 16% of the residual value of the credit which is about 3 to 8 times higher than in all other countries.
The parliament should thoroughly investigate practices like those of Citibank which constantly refinances the same credit by using the weak situation of consumers who have difficulties to repay or who need even a small additional amount of credit. Debt advisors and consumer advocates agree since long that these forms of chain credit and revolving systems are one of the main reasons for default.
Also the latest form of a non binding rule is not responsible and unnessecary. The right to repay one's debt is enough. If the Directive only points to this right legal doctrine says that no indemnisation that hinder to exercise this right are allowed. This give sufficient leaveway to flexeble reactions.
PARLIAMENT SHOULD ABOLISH MAXIMUM HARMONISATION
The unqualified treatment of consumer credit at the European level should have taught one lesson: national authorities know more about consumer debt, overindebtedness and its social consequences. This is why the plenary of the Parliament should not follow the present proposal of IMCO and delete the Maximum Harmonisation article from the text. For the rest a competition for best practice in regulation should help to find adequate solutions to prevent overindebtedness in the future.
Created: 12/12/07. Last changed: 19/12/07.
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