CONSUMER CREDIT DIRECTIVE PASSED IN THE EUROPEAN PARLIAMENT - "Blind leading the Blind" European Parliament has passed the New Consumer Credit Directive. It will now only formally go back to the Council to be agreed. EARLY REPAYMENT FEES The Socialist Deputies of the Parliament as well as consumer organisations managed half victory in early repayment fees. Yes, we will have such fees in future. Getting rid of one's debt will be a costly business and possibly a profit for a bank. But the fee will be capped in a double way so that for countries which have a strong consumer movement usurious prices will be avoided. But this may perhaps not be effective in Germany. Its actual jurisprudence assumes in mortage loans that the damage German banks face when a credit is repayed earlier is up to seven times higher than in the surrounding countries. This German rule may now be applied to consumer credit where until now no early repayment fees were allowed. But on the other hand the Directive prescribes the methods of how to calculate the damage. This may change German jurisprudence. We will have to analyse it. In its press release the Parliament writes: "The directive allows Member countries to provide that the creditor may exceptionally claim a higher compensation. This may happen if the bank can prove that the loss he suffered from early repayment exceeds the maximal basic amount defined in the directive. The harmonised method of calculating the loss is given in the text." COVERAGE: Now credit contracts up to 75,000 € will be covered. MAXIMUM HARMONISATION: While we did not succeed to stop this centralisation many loopholes have been cut into this frame of a newly emerging federal United States of Europe legislation. We proposed standardisation for appearance and forms. Indeed the unified form to give the required information will be a progress, but the overload in information is questionable because it does not care for cultural diversity, nor the different stages of development in consumer credit, nor the different actors in this area. LEGAL VERSUS ECONOMIC LANGUAGE: While the Directive uses mostly economic language in Leasing and Interest Rate Disclosure it uses a purely legal language which accepts that the supplier side is able to define what should be covered. APR: One of the most important failures of the Directive is the fact that the old and new APR will only cover small parts of the credit cost in future and invite all banks to cheat consumers by transferring interest into annexed products or by keeping prices seeking as long as the consumer can switch to another supplier. More than half of all consumer credit is now connected to some kind of high price insurance. The premiums paid for the insurance flow back to the banks in the form of a kick back provision which sometimes amounts to more than 50%. In fact these provision are hidden interest. But the new Directive will support this fraud. It suffices to write that the consumer was not legally obliged to buy it. (an anachronism because legally the signature of the consumer already creates the obligations.) In addition most consumer credit offers no longer any price at all. Risk based pricing where the effective price is linked to the score value the customer gets in accordance with his creditworthiness has led to a system where "from 4% up" is legally disclosed while the final price may be 20% after the customer has already given all his information and is thus caught in a trap which he or she is unable to escape. VARIABLE RATE CREDIT. The new Directive further ignores what the US government sees as the core of the suprime credit crisis variable rate credit where customers are lured into a credit with a low first year payment and then left to the mercy of the supplier. Just asking to disclose the initial prices is no longer adequate. CREDIT CARD has got a lite regime. It is largely favoured by the Directive, mortgage loans are excluded even those who are misused for consumption purposes (second mortgage market). PRELIMINARY EVALUATION Overall the whole struggle was not in vain. We could help to keep some diversity and options. But it was a battle in defense of consumers and not as the press releases want to tell us to cope with their problems with a growing market of inadapted, extorionate, irresponsible and useless credit. A positive attitude towards the dramatic developments in the consumer credit markets where the poor now account for the highest profits suppliers can make is not visible. We will focus now on the national implementation process and help every country to develop something which comes close of what we convened in the seven principles of responsible credit. Now the member states have the possibility to show that the initiated race to the bottom in consumer protection will not take place. We will closely monitor the solutions each country finds and will elect the most "respionsible credit country" in the future. The next ECRC conferences will exchange the information and offer help to each other. The deputy from the UK Independence Party we cited in the headline and whose vision of a Great Britain without Europe we do not share thinks that the EU is unable to know what is good for different countries. This is not our problem but still it is true that the blind lead the blind. We think that this Directive is blind with regards to the overindebted consumers just outside the Parliamentary Building in Brussels itself. It is socially blind and also blind with respect to what happens in the credit market with price disclosure, credit sales, flipping, refinancing, fees and practices with non-performing-loans and products that lure consumers into overindebtedness. Maybe Europe will learn that we expect more from Brussels than just the general credit conditions which an average bank would also be willing to set up. ID: 40761 Author(s): UR Publication date: 17/01/08     URL(s): Press Release of the European Parliament with Main Points of the Directive

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