The European Consumer Credit Market

The EU aims to develop the cross-border consumer credit market while simultaneously strengthening consumer’s protection in this sector. 

Update: June 2013

During a period when over-indebtedness was becoming more and more common for households, there was a pressing need to establish a common legal framework for all member states:  this was the role of the European directive 2008/48/EC.

In January 2012, an EU-wide investigation of websites offering consumer credit took place to find out whether consumers are receiving the information which they are entitled to under EU consumer law before they sign a consumer credit contract. Read more

The European Consumer Center has also decided to “take the temperature on the ground” directly amongst consumers and banks, to verify if the objective stated by the European legislator has been achieved. To do this, the Zentrum für Europäischen Verbraucherschutz e.V.  has taken an interest in the French-German example, by comparing the transposition of the directive in the two national legislations and overall, by verifying if it has become easier for borrowers to take out a consumer credit in a bank of the neighboring country.

Rules of the consumer credit in Europe have been partially harmonized

The European Consumer Center has studied in detail the new German and French legislations since the transposition of the directive 2008/48/EC. We have to conclude that notable differences exist between the applicable rules in both countries, demonstrating that the objective of maximum harmonization set by the European Union has not been reached.

The first difference concerns the scope of application of the consumer credit. The German legislator had a broader view than his French counterpart by applying consumer credit rules to housing credit rules, under certain conditions. It is hard to see things clearly in these conditions and to speak about harmonization at European level…

The report also revealed that unlike Germany, the new French legislation (law Lagarde from the 1st of July 2010) concerning consumer credit goes far beyond the European directive, by creating a broader protective environment for consumers. In France, for instance, lenders’ obligations with regards to pre-contractual information for the consumer are much stricter than those laid down in the directive (withdrawal period, formalism of documents…).

Through the Lagarde law, France has tried to create a more responsible consumer credit mechanism, notably by increasing the borrower’s solvency verification. Before granting a credit, French bankers are obliged to consult the file of credit repayment incidents. However, this obligation does not exist in Germany and is not foreseen by the European directive. 

Finally, in the event of non-compliance with all these terms, the French legislator foresees an extremely dissuasive sanction mechanism for the lender, which is not the case on the German side.

In short, we see that the applicable rules are not the same in both countries and that they ultimately depend on whether the consumer subscribes to a contract in France or in Germany. In any case, does he really have the possibility to choose the country in which he is going to borrow money?

Banks do not lend money to non-residents

In May 2011, a study carried out by the Zentrum für Europäischen Verbraucherschutz e.V. in the pilot zone of the Euro-district Strasbourg-Ortenau revealed that the directive 2008/48/EC has not yet been able to unlock the cross-border market of consumer credits.

Most of the French and German banks that were studies (via a questionnaire) indicated that they do not want to offer cross-border credits to borrowers who do not live in the lender’s country. The main reasons for this unwillingness are the lack of guaranty in terms of consumers’ solvency and the recovery possibility in case of a repayment incident.

The European directive addresses these questions of primary importance too superficially, since cross-border contracts have to be concluded in a secure manner for both parties.

In the course of the ECC study in the automobile field, a concrete example of this has been highlighted: a German car dealer established directly on the border explained that he does not provide any credit to the numerous French customers he receives. In Germany, registration certificates consist of two documents, one of which is kept by the lender in case of a sale on credit, which serves to secure the transaction. Unfortunately, this safety system is not possible for customers who live in France since the French carte grise consists in a single document. 

Need for an effective consumer credit market in Europe

When there is no lender, it is futile to protect the borrower… To develop the single consumer credit market and permit consumers to benefit from these advantages, concrete measures must be taken, and in particular, those which encourage banks to offer contracts across borders.

The European harmonization in this sector is expected to grow and to include certain aspects which the directive 2008/48/EC fails to appropriately address, notably the question of guarantees and securities for the lender.

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