EU agrees new rules on online credit
Summary
European parliamentarians have reached an agreement on updated consumer credit rules designed to protect citizens from new forms of online debt, such as buy now, pay later (BNPL) schemes and short-term high-cost loans.
Updates to the Consumer Credit Directive will ensure an improved assessment of the consumers' ability to repay and limit the cost of credit, through measures such as caps on the interest rate, the annual percentage rate of charge, and the total cost of the credit.
The update also mandates that credit advertising should always contain a clear and prominent warning that ‘borrowing money costs money’.
In a clear blast at the kind of alluring advertising strategies deployed by BNPL firms such as Klarna, the memorandum states ‘Advertising should not encourage consumers to seek credit by suggesting it would improve their financial situation, that credit leads to an increase in financial resources, constitutes a substitute for savings, or can raise a consumer's living standards.’
The legislation will cover credit agreements of up to €100,000.
Commissioner for Justice Didier Reynders commented ‘In the current cost-of-living crisis, where consumers may need to use credit for their basic needs, it is absolutely crucial to ensure they have adequate information and protection. The digitalisation process, accelerated by the pandemic, profoundly changed the financial sector, and new forms of credit are being proposed to vulnerable consumers online. The new rules will contribute to increasing consumer confidence and will foster responsible practices, both online and offline.’
Links: https://www.finextra.com/newsarticle/41432/eu-agrees-new-rules-on-online-credit