Policy
Policy brief
Responsible Lending and Borrowing in the EU
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Contact: Sharon Chapman Date: 8 Oct 2010 |
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Proposal for a Directive of the European Parliament and of the Council on Credit Agreements Relating to Residential Property
On 31 March 2011 the European Commission published its proposal for a Directive on credit agreements relating to residential property. The Directive can be accessed below:The proposed Directive is a result of the European Commission's consultation paper: Public Consultation on Responsible Lending and Borrowing in the EU published in June 2009.
The consultation in full and the BSA response can be accessed via the links below:
Public Consultation on Responsible Lending and Borrowing in the EU
BSA Response to the EU consultation on Responsible Lending and Borrowing
The objectives of the Directive are two-fold. First it aims to create an efficient and competitive single market for consumers, creditors, and credit intermediaries with a high level of protection by fostering consumer confidence, customer mobility, cross-border activity of creditors and credit intermediaries, and a level playing field. Second, the proposal seeks to promote financial stability ensuring that mortgage credit markets operate in a responsible manner.Key Contents
The scope of the proposal is to cover credit agreements secured by a mortgage or by another security, loans to purchase a property and certain credit agreements aimed at financing the renovation of a property.
In particular, the proposed Directive focuses on:
• Conditions for creditors and credit intermediaries ensuring they act in the best interests of the consumer and with appropriate knowledge and competence
• Provision of personalised information to the consumer on the basis of a European Standardised Information Sheet (ESIS), with prescribed content and layout
• Rules concerning the calculation of the annual percentage rate of charge (APRC), and provision of information to consumers in the event of changes to the borrowing rate
• Assessment of the consumer’s ability to repay, but in addition there is also a focus on the requirement for ‘responsible borrowing’; namely that the borrower must provide all necessary and correct information to enable the creditworthiness assessment to be carried out
• Consumers’ right to repay their credit before the expiry of the credit agreement, without excessively onerous conditions.
European Process
A Directive is a legislative act of the European Union, which requires member states to achieve a particular result without dictating the means of achieving that result. Directives normally leave member states with a certain amount of leeway as to how the exact rules will be adopted. The level of harmonisation (alignment of rules across member states) is yet to be determined. The FSA is the competent authority that will be responsible for implementing the Directive in the UK.Next Steps
The Commission’s proposal must be agreed by the European Commission (EC), European Parliament (EP) and the Council of Ministers before it is adopted.
Opinions and proposed amendments to the content of the Directive will be debated during the autumn. How the debates and subsequent votes proceed will determine whether this Directive is passed through Parliament.
