New European rules on credit agreements for consumers

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The rules on credit agreements for consumers were revised at the end of 2023, when new responsibilities for creditors were introduced to protect consumer rights, shows an analysis by the law firm PeliPartners.

“On 30 October 2023, Directive 2023/2225 on credit agreements for consumers and repealing Directive 2008/48/EC was published in the Official Journal of the European Union. The aim of the new directive is to address technological and market developments that have occurred since the adoption of Directive 2008/28/EC and, at the same time, to ensure a high and equivalent level of protection of the interests of all consumers in the Union,” explained Cătălina Burcă-Andonie, Associate PeliPartners.

In this context, Directive 2023/2225 comes with several amendments and novelties.

Extended scope of Directive 2023/2225

Following the adoption of Directive 2023/2225, the protection of consumer rights will also apply to the following categories of credit agreements for consumers, previously not covered by the incident legislation:

  • credit agreements of less than EUR 200;
  • hiring or leasing contracts with an option to buy;
  • credit agreements in the form of an “overdraft” facility under which the credit has to be repaid within one month;
  • credit agreements free of interest or any other charge;
  • credit agreements under which the credit must be repaid within three months and for which only insignificant costs are payable;

“With regard to the above credit agreements, Directive 2023/2225 provides that Member States may limit or exclude obligations imposed on creditors/credit intermediaries relating to advertising or the provision of pre-contractual and contractual information,” explained Cătălina Burcă-Andonie.

  • “buy now, pay later” contracts;
  • credit agreements involving a total amount of credit of more than EUR 100 000, which are not secured either by a mortgage or by another comparable security commonly used in a Member State on immovable property or by a right related to immovable property, where the purpose of those credit agreements is the renovation of a residential immovable property.

Extending the scope of the European rules on credit agreements for consumers means extending the responsibilities of creditors/credit intermediaries, who will also have to observe the level of consumer protection for the new types of credit agreements covered by Directive 2023/2225.

Increased responsibilities for creditors

PeliPartners’ analysis shows that Directive 2023/2225 circumscribes several responsibilities for creditors/credit intermediaries, the most important of which are:

Provision of pre-contractual information

According to Directive 2023/2225, the creditor/credit intermediary is obliged to provide the consumer with essential credit information, such as the total amount of credit, the duration of the credit agreement, the borrowing rate or the annual percentage rate of charge, in good time before a consumer is bound by any obligations under a credit agreement or credit offer.

This information must be provided in a prominent way on a single page in the first part of the “Standard European Consumer Credit Information” form set out in Annex 1 to Directive 2023/2225.

“Where pre-contractual information is provided less than one day before a consumer is bound by any obligations under a credit agreement or credit offer, the creditor/credit intermediary will be required to send the consumer a reminder of the possibility to withdraw from the credit agreement and the procedure to be followed for withdrawing. The reminder shall be provided to the consumer within one to seven days of the conclusion of the agreement or the submission of the credit offer”, explained Cătălina Burcă-Andonie.

Right of withdrawal

The consumer continues to benefit from the 14 calendar days within which he can withdraw from the credit agreement without giving any reason.

In addition, in order to increase legal certainty, the creditor will have to grant the consumer a withdrawal period of 12 months and 14 days from the conclusion of the agreement if the creditor has not made the consumer aware of the contractual terms and conditions.

The warning “Caution! Borrowing money costs money”

Directive 2023/2225 introduces an obligation for advertising of credit agreements to include a clear and prominent warning to reduce mis-selling of credit to consumers who are unable to afford it.

To this end, consumer credit advertising will have to use the phrase “Caution! Borrowing money costs money”.

Tying and bundling practices

Directive 2023/2225 allows bundling practices but prohibits tying practices.

Tying practice means the offering or selling of a credit agreement in a package with other distinct financial products or services, where the credit agreement is not made available separately to the consumer. Bundling practice means the offering or selling of a credit agreement in a package together with other distinct financial products or services, where the credit agreement is also made available to the consumer separately but not necessarily on the same terms or conditions as when it is offered bundled with those other products or services.

Under Directive 2023/2225, Member States may allow creditors to request the consumer to open or maintain a payment or savings account if  the sole purpose of such an account is one of the following:

  • to accumulate capital to repay the loan;
  • to service the credit;
  • to pool resources to obtain the credit;
  • to provide additional security for the creditor in the event of default.

At the same time, Member States will be able to allow creditors to require the consumer to hold a relevant insurance policy related to the credit agreement, taking into account proportionality considerations. In such cases, Member States must ensure that the creditor is required to accept the insurance policy from a supplier other than his preferred supplier, if such insurance policy has a level of guarantee equivalent to that proposed by the creditor, without modifying the conditions of the credit offered to the consumer.

Transposition

Member States shall adopt and publish, by 20 November 2025, the laws, regulations and administrative provisions necessary to comply with Directive 2023/2225.

Member States shall apply the provisions of Directive 2023/2225 from 20 November 2026.

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