Banking regulation Q&A: consumer protection
The banking regulation Q&A series provides a comprehensive overview of the rules governing the banking sector in Luxembourg. Today's chapter focuses on consumer protection.
What requirements must banks comply with to protect consumers in your jurisdiction?
The Luxembourg Consumer Code includes a number of requirements that must be complied with by professionals when dealing with consumers. These include requirements with respect to information to be provided to consumers, unfair business practices and specific requirements in relation to contracts entered into with consumers, including mortgage loan agreements and consumer credit agreements.
With respect to consumer credit and mortgage lending, the Luxembourg Consumer Code:
- requires professionals to provide certain information to consumers prior to entering into a contract with them, includes certain conditions with respect to advertising (in particular, specific information that must be mentioned, and the way in which it must be displayed);
- prohibits certain advertising practices (eg, advertisements that specifically focus on the ease and speed with which credit can be obtained, that make consumers believe that the credit will improve their financial situation, or that mention an attractive interest rate without specifying the conditions to which such rate is subject);
- obliges lenders to provide consumers with explanations allowing them to compare different offers and to decide whether the relevant credit is suitable to their needs;
- obliges lenders to assess the solvency of consumers and includes specific provisions on how to perform such assessment;
- sets out the mandatory minimum content of consumer credit agreements;
- obliges lenders to provide information on the interest rate and includes specific rules with respect to variable interest rates;
- sets out requirements with respect to overdraft facilities and overdrafts on current accounts;
- sets out the right for the consumer to withdraw from the credit agreement during a period of 14 calendar days;
- gives the consumer the right to prepay a loan, includes rules for the calculation of the effective global annual interest rate;
- requires mortgage lenders to provide explicit information as to whether advisory services are provided or will be provided;
- includes specific provisions with respect to late payment and the right for lenders to enforce/attach assets; and
- includes specific rules of conduct for mortgage lending, as well as knowledge and skill requirements for staff of mortgage lenders.
Any clause or combination of clauses in a consumer credit agreement or a mortgage loan that breaches the Consumer Code is deemed to be void. The Consumer Code also includes administrative and criminal sanctions for lenders and intermediaries.
How are deposits protected in your jurisdiction?
Deposits are protected by the Fonds de Garantie des Dépôts Luxembourg (FGDL), which is a public body that was established by Law of 18 December 2015 on the resolution, reorganisation and winding up measures of credit institutions and certain investment firms and on deposit guarantee and investor compensation schemes ('BRR Law'). The FGDL ensures the repayment to depositors in case of unavailability of their deposits, up to €100,000 per person and per institution. The standard €100,00 protection may be increased to €2.5 million in certain specific cases and subject to specific conditions (eg, deposits resulting from real estate transactions relating to private residential properties). The FGDL must normally repay within seven working days. Certain deposits are excluded from protection (eg, deposits made by other credit institutions on their own behalf and for their own account, deposits by financial institutions, deposits by investment firms, deposits by insurance and reinsurance undertakings, deposits by undertakings for collective investment, deposits by pension and retirement funds and deposits by public authorities).
All Luxembourg credit institutions, as well as Luxembourg branches of credit institutions having their registered office in a third country, must be members of the FGDL. The FGDL collects contributions from member institutions on an annual basis and the amount of each institution's contribution is calculated based on the amount of covered deposits and the degree of risk incurred by the institution. The FGDL reached the initial target level of available financial means equivalent to 0.8% of the amount of covered deposits of member institutions at the end of 2018. The FGDL will continue to collect contributions until 2026, in order to reach a level of available financial means equivalent to 1.6% of the amount of covered deposits of member institutions.
There is also an investor compensation scheme (Système d'indemnisation des investisseurs Luxembourg) which, subject to certain conditions, protects customers holding financial instruments.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
First published in Mondaq
Michael SchweigerLocal Partner Attorney at law / Avocat à la Cour / Solicitor
Michael Schweiger, local partner, is a member of the Banking & Finance practice group in our Luxembourg office. He leads the Luxembourg financial regulatory team and regularly advises banks, e-money and payment institutions, insurers, and other clients regarding financial regulation.T: +352 466 230 520 E: [email protected]
Adrien PierreSenior Associate Attorney at law / Avocat à la Cour
Adrien Pierre, senior associate, is a member of the Banking & Finance Practice Group in our Luxembourg office. He advises banks, asset managers, fintechs, payment institutions, insurance companies and other financial institutions on regulatory matters.T: +352 466 230 523 E: [email protected]
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