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uk consultation on consumer credit directive April 14, 2009

Posted by Bradley in : Uncategorized , trackback

The UK’s Department for Business, Enterprise and Regulatory Reform today published a consultation document on implementation of the consumer credit directive. Although the directive was adopted nearly a year ago (and so one might have thought there could have been an earlier publication of the consultation document), the consultation period is to be 8 weeks long rather than the usual 12 weeks because of the need to give lenders as much time as possible to comply with the new rules.

There’s a long and detailed discussion of how to implement the requirement (in Art. 5(6) of the directive) that:

Member States shall ensure that creditors and, where applicable, credit intermediaries provide adequate explanations to the consumer, in order to place the consumer in a position enabling him to assess whether the proposed credit agreement is adapted to his needs and to his financial situation, where appropriate by explaining the pre-contractual information to be provided in accordance with paragraph 1, the essential characteristics of the products proposed and the specific effects they may have on the consumer, including the consequences of default in payment by the consumer. Member States may adapt the manner by which and the extent to which such assistance is given, as well as by whom it is given, to the particular circumstances of the situation in which the credit agreement is offered, the person to whom it is offered and the type of credit offered.

The consultation document suggests that at one extreme UK rules could implement this requirement by leaving it up to the consumer to decide whether explanations were adequate while at the other extreme the responsibility to ensure suitability could be imposed on the lender. I’m not at all sure that the description of a minimal solution would comply with the requirements of the directive, but what is proposed is somewhere on the middle, although with a suggestion that customers might be able to opt out of lengthy explanations.

A similar choice between minimal and maximal implementation is offered with respect to the obligation under Art. 8 to assess the consumer’s creditworthiness. The consultation document proposes to set different requirements for different lending contexts.

With respect to both issues there’s a sense that the drafters of the document wanted to present the minimal and maximal strategies as the worst possible outcomes (from different perspectives) so that the compromises suggested look more reasonable from either perspective than they otherwise would.

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