Comments on the Commission's modified proposal for a Consumer Credit Directive
(COM (2005) 483 final)

1. Introduction

In April 2004 the European Parliament adopted a first reading opinion on the proposing significant changes to the Commission’s original proposal of 2002 for a Directive on Consumer Credit. Following the Parliament’s first reading the Commission published a modified proposal in October 2004.

In October 2005 the European Commission published a second revised modified proposal. This second modified version is a consolidated text based on the first modified proposal but also incorporating some significant changes.

Consumer credit is an essential service that mail order and distance selling companies offer to their customers, in many cases it is offered by the company itself. Around 40% of all purchases in our sector in Europe are financed by credit. It is for this reason that EMOTA[1] has closely followed and participated in the discussions on this proposal.

This paper contains EMOTA’s comments on some specific aspects of the second Commission amended proposal in view of the discussions taking place at the moment in the Council and of a future second reading in the European Parliament.

2. Comments

a) Credit without interests or any other charges (Article 2.2(e) and 3(c))

The Commission revised proposal only excludes from the scope of the Directive those credits without interest or any other charges paid back within three months.

Some distance selling companies, in order to reach a satisfactory volume of sales, offer to consumers more favourable payment conditions such as the deferred payment of the goods in instalments without the payment of interests or other charges for a period of three or more months. The price of the goods is the same independently of the form of payment, this being either cash or monthly instalments. As the statistics show, the offer of these payment facilities results in a better consumer response and economies of scale which is translated into a lower cost of the product and in lower prices for the consumer.

The introduction of credits without interests or any other charges of a period longer than three months in the scope of the revised proposal will not add to the protection of consumers and will only create too much bureaucracy for companies offering these facilities. The seller would have to comply with a series of administrative obligations such as providing information to the consumer on the APR, in this case “zero”, or on the costs of credit, which would be unnecessary because there are no interests or charges, that will just create a series of administrative obligations making more bureaucratic and difficult the sale of the product.

The credits without interests and charges allow the consumer to acquire goods (ex: furniture, encyclopedias…) in comfortable installments and in a transparent way since the consumer knows at every moment the amount and the number of installments. Moreover, if companies using this payment facility would have to apply all the provisions of the revised proposal, they would not be able to cope with all the obligations imposed by themselves and would have to turn to financial companies. This would originate extra costs and as a result they would not be able to continue offering credits without interest/charges to their customers.

For all these reason we relieve that the credit without interest and charges should be excluded from the scope of the Directive as it is already the case of the current Directive (87/102) and in line with the first reading of the European Parliament, where the definition of credit agreement was modified, so that the Directive would only cover credits provided “for remuneration”.

EMOTA’s position on this point regarding the need for a complete exclusion of credit without interest from the scope of the Directive is supported by the Federation of European Publishers[2].

b) Small credits (Article 2.4(a))

The Commission original proposal of September 2002 eliminated the minimum and maximum ceilings of 200 and 20,000 ECU established in article 2 of Directive 87/102.

The revised Commission proposal re-introduces a maximum ceiling of €50,000 in article 2.2(b). Nevertheless, it does not establish a minimum ceiling and reduces instead the number of provisions to be complied with in the case of credits under €300.

Although the Commission’s revised proposal recognises to a certain extent the need to differentiae between small credit contracts and other credit contracts with a higher risk, it fails, in our view, to fully take into account the burdens that even a simplified regime, such as the one proposed by the new text, would have on small credits. We are still concerned that the additional costs incurred by distance selling companies in complying with the provisions of the Directive will be disproportionate for small credits. We are therefore supporting the amendment adopted by the Parliament in first reading completely excluding credits under €500 from the scope of the Directive. The inclusion of a minimum ceiling would also be much more consistent with the inclusion of a maximum ceiling in the new revised text.

c) Definition of credit intermediary (Article 3(e))

The revised Commission proposal envisages the regulation of the activities of credit intermediaries. The notion of credit intermediary is presented as a general concept covering any person who habitually assists in the conclusion of a credit agreement for a fee. This broad definition is likely to have an unforeseen impact on the agency mail order business conducted in some European countries.

The agency mail order is one of the oldest forms of distance selling. Among the features distinguishing agency mail order from other forms of distance selling is the use of agents as mere intermediaries between the company and the customer to circulate catalogues, take, collate and transmit orders, deliver goods, present the payment possibilities available (including credit) and collect and remit payments in return for a commission. In the UK and Germany alone these agents represent around eight million people, mainly buying for themselves and their immediate family, neighbours and friends[3]. They are mainly women aged between 30 and 50, two thirds of whom enjoy low incomes[4].

Unfortunately, through the definition of credit intermediary adopted by the revised Commission text, the activities of these agents are swept into the scope of the revised proposal. To bring mail order agents into the scope of regulation and supervision will not add to consumer protection since distance selling companies using them already assume any responsibility and liability for their actions. Rather, this will lead to the discouragement of existing agents from continuing to act and rendering unlikely the recruitment of new agents. The consequence of this is expected to be the extinction of this kind of trade that is already under continuing decline, causing economic problems for operators, adverse effects for employment and a restrictive effect on the level of credit available to persons in the lowest income levels.

EMOTA believes that it is necessary to differentiate between credit brokers that basically look and advise the consumer on the most advantageous credit offers available in the market and mail order agents, where the distance selling company assumes responsibility for their actions.

d) Information on the consultation of a database (Articles 5.2(m) and 8.2)

The revised text in article 5.2(m) establishes that the consumer must be informed of the right to know “the result of” a database consultation for the assessment of his creditworthiness. Nevertheless, the inclusion of the words “the result of” raises doubts as to which kind of information would have to be given to the consumer. Is it enough if the company tells the customer that it consulted a database or should it give much more detailed information on every piece of information used to reach that decision? For the sake of clarity the words “result of” should be deleted. For the same reason, article 8.2 should specify that the consumer shall be informed of the result of any database consultation by the “database owner”.

°°°°°°°°°°°°°°°°°

EMOTA appreciates the opportunity to comment on the issue and is available for further information, clarification and discussion.

Brussels, 16 January 2006  MOU

ANNEX

PROPOSALS FOR AMENDMENTS

a) Credit without interests or any other charges

Article 3 (c)

Alternatively the following amendment is proposed:

Article 2.2 (e)

b) Small credits

Article 2.2 (b) new

Article 2.4 (a)

c) Definition of credit intermediary

Article 3 (e)

d) Information on the consultation of a database

Article 5.2 (m)

Article 8.2