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Revision of the Consumer Credit Directive: consequences for buy now, pay later services and private lease

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20-06-2022

4 minutes read

On June 30, 2021, the European Commission published a proposal to revise Directive 2008/48/EC on credit agreements for consumers (the Directive). An important change would be the extension of the scope of the Directive to private lease and services that provide a postponement of the payment of the purchase price of a product or an existing debt (buy now, pay later). In this news item we highlight the recent developments regarding the proposed Directive.

Key insights

The Consumer Credit Directive will be revised to ensure a high level of consumer protection and to enhance the creation of an internal market for credit

The proposal significantly broadens the scope compared to the current directive, resulting in the fact that private lease and buy now, pay later services also becoming subject to authorisation

Also, the provision of information to consumers will also be improved (with an additional information document), new rules will be included to prevent consumers from being (unintentionally) steered in the direction of taking out a credit, and the rules regarding the creditworthiness test will be clarified and supplemented

It is not clear yet when (and if) the proposed revised Directive will enter into force

Banking & Finance Financial Regulatory

Revision of the Consumer Credit Directive

With the proposed Directive (link), the European Commission aims to ensure a high level of consumer protection and to enhance the creation of an internal market for credit. The increasing digitalization and the related adaptation of consumer behaviour and preferences are, by the European Commission, seen as the main reasons for the lack of a consistently high level of protection. The proposal for the revised Directive significantly broadens the scope compared to the current Directive, it improves the information provided to consumers (with an additional information document), include new rules to prevent consumers from being (unintentionally) steered towards taking out a credit, and clarifies and supplements the rules regarding the creditworthiness test. In addition, there is a proposal for a mandatory cost ceiling for credit, as is already in place in the Netherlands with the maximum credit fee for consumer credit.

Private lease

Rental and leasing agreements (which do not involve an obligation to purchase the object) are excluded from the scope of the Directive. The European Commission has proposed to remove this exception. As a result, "private lease" would be subject to authorisation and consumer protection provisions, such as the creditworthiness test, would apply. From the report of a written meeting dated February 23, 2022 (link), it appears that the Dutch cabinet is positive about this proposal, but believes that low-risk lease contracts should not have to fall under the scope of the Directive. However, it follows from the first council negotiations that a majority of the member states is not in favour of bringing lease contracts under the scope of the Directive, because they do not consider renting and leasing as a form of credit and, in addition, there is no unambiguous European definition of lease contracts. If the proposal to include private lease under the scope of the Directive is not successful, the Minister of Finance has indicated that he will look at a possible national approach through legislation or self-regulation (link).

Buy now, pay later

Currently, the offering of buy now, pay later services fall outside the scope of the existing Directive. This exception is incorporated in Article 1:20(1)(e) of the Wft, which states that offering credit that must be repaid within a period of three months and for which only insignificant costs are charged does not fall under the scope of the Wft. The so-called buy now, pay later service providers make use of this exception. In a recent report (link), EBA paid attention to the risks associated with these services. These risks include the fact that this type of service encourages hasty purchases (by less creditworthy consumers), it is used as an alternative to traditional regulated forms of borrowing and entering into or not (timely) repayment of a buy now, pay later "credit" does not have to be registered with the BKR which lead tot he fact that the picture of the creditworthiness of these consumers is not complete.

The Dutch cabinet supports the Commission's proposal to include buy now, pay later service providers under the scope of the Directive. The Dutch cabinet also recognizes that these services entail risks and high costs for consumers. However, the Dutch cabinet does not want to create any unnecessary obstacles for consumers to pay for products at (web) stores in a short period of time afterwards, insofar as the risks involved for consumers are limited (link). The Dutch cabinet refers here to Article 7:26 of the Dutch Civil Code, under which a consumer can only be required to pay a maximum of half of the purchase price of a product in advance. The question is how the possibility of paying a product to the (web) retailer in arrears relates to the removal of the exception for short-term credit agreements, where no or insignificant costs are charged. This question has yet to be answered.