Brussels, 31 October 2003

With the support of The European Commission
DG Health and Consumer Protection

EURO COOP is the European Community of Consumer Co-operatives, whose members are the national organisations of consumer co-operatives in 11 of the 15 EU Member States and in 3 candidate Member States. Created in 1957, EURO COOP today represents over 3,200 local or regional consumer co-operatives with over 19 million consumer-members across the EU and 2 million in the associated countries of Central and Eastern Europe.

EURO COOP welcomes the Commission proposal for a Directive regarding Consumer Credit. This is an important issue for consumers given the widespread use of this financial product. The economic and social changes that have occurred since the original directive of 1987 fully justify a Community action on this matter. In this period, we have gone from a cash society in which credit played a secondary role to one where credit plays a vital role in the economic life of society.

A revision of the directive 87/102/CEE would seem necessary for various reasons, including the following:

• Firstly, the transposition of the directive has not allowed the achievement of one of its stated objectives which is to allow comparison of the various offers to consumers in the various member states.
• Secondly, the harmonisation of interest rates has not happened - fundamentally because of the differences adopted in the transposition by the member states.
• Thirdly, the appearance of types of credit or credit contracts not previously taken into account.
• And finally, the need to complete the directive on a series of points not dealt with until now and which are vital to ensure effective consumer protection in the field of consumer credit i.e., reciprocal information, responsibility of the lender, the activities of intermediaries and the linking of credit to consumption, etc.

In general EURO COOP agrees with the content of the proposal. We believe that this revised Directive will reinforce consumer protection and will help consumers fully benefit from the Internal Market.

Nevertheless, there are some specific comments we would like to stress:

Article 1 and 30: Maximum harmonisation.

In principle, maximum harmonisation works in favour of consumers since it establishes common rules all over the Community allowing them to benefit more from the Internal Market. However, this is only true if maximum harmonisation is set with the highest standard of consumer protection and empowerment. Otherwise, Member States that wish to apply higher levels of consumer protection than the ones set out in the Directive will not be allowed to do so.

From another point of view, maximum harmonisation may be a problem for consumers if the economic and social conditions concerning consumer credit continue to change (new forms of credit, etc.) and if these rules are insufficient to establish a high standard of protection. One way of ensuring that the proposed Directive does not as a result become obsolete would be to include a revision clause. Otherwise, Member States will not be allowed to solve the problems and a revision of the Directive may be a less flexible and more time consuming effort.

Finally, maximum harmonisation does not take into account the specific conditions of consumer credit in each Member State and may, therefore, create loopholes in certain areas and regions.

For these reasons EURO COOP accepts maximum harmonisation as long as it is done in a way that assures the highest standard of consumer protection and empowerment. The proposal is, in the view of EURO COOP, positive, but there are some provisions that should be changed in order to attain a high common level of consumer protection. If this is not achieved EURO COOP would prefer to have an improved directive of minimum harmonisation that would allow Member States to establish individually higher standards of protection.

Article 2: Definitions.

EURO COOP views the proposed definition of "credit intermediary" to be very important since it foresees any person who assists in the conclusion of a credit agreement. There are many situations where consumers do not have direct contact with the creditor and it is therefore very important that anyone who acts as an intermediary be accountable to the consumer.

We feat that the proposed definition will restrict the concept of the intermediary in such a way that in practice it eliminates their responsibility. The concept of regularity eliminates from the definition and therefore from the protection of the directive those activities of a sporadic nature that in reality can involve the granting of a consumer credit.

Moreover, the requirement for an agreed financial consideration implies the existence of a pact or agreement between the intermediary and the lender, a circumstance that could be used by both parties to exempt themselves from responsibility claiming that such an agreement doesn't exist. This happens in practice on a daily basis, so that financial entities who grant loans directly through suppliers of goods and services deny the existence of an agreement to avoid any responsibility towards the consumer.

It is a fact that the concept of fee as "any other agreed form of financial consideration" will be extremely difficult to prove for the consumer in case of conflict.

It is for these reasons, EURO COOP considers it necessary to eliminate from the definition of credit intermediary the requirements of regularity and payment to establish the relation between intermediary and the financial institutions.

Furthermore, the proposal includes three different interest rates: APR, the total lending rate and the borrowing rate. The APR is well known among consumers and is vital for the comparison of the various offers. However the total lending rate only reflects the costs of the lender. A practical problem arises in that the directive will allow advertising that only includes this rate, without any obligation to include the APR. The existence of various interest rates will be confusing for the consumer.

Article 3: Scope

EURO COOP fears that the scope of the Directive can be avoided by including the costs of the credit in the final price of the main object of the transaction and therefore giving it an appearance of a credit free of costs or with APR costs lower that the market. On these grounds we find it of utmost importance the deletion of the wording of Article 3.2 c) and d).

EURO COOP also believes that mortgage credit should also have the same high level of consumer protection and harmonisation across Europe.

Article 4: Advertising.

We do not agree with the solution presented by article 4 of the proposed Directive concerning advertising. In general the consumer looks for two things in the advertising of a consumer credit: First, the real cost of the loan to know exactly how much is to be paid and secondly the possibility to compare it with other offers on the market. Neither of these objectives is achieved in the present articles of the directive; in fact it worsens the situation in some Member States.

EURO COOP does not agree that it is a good idea to render more flexible the rules concerning this kind of advertising because financial products such as consumer credit are complex and difficult to understand for the average consumer. The proposed article may create a situation where advertisements, without being misleading, do not give the fundamental information to consumer (i. e., the real costs of the credit) and may be difficult to compare to other credit offers. This situation is even worse when taken together with the fact that the proposed Directive proposes several concepts related to the cost of credit.

Although the APR indication system has some limitations, it establishes a certain common indicator that can be easily used by consumers and to which they are already accustomed. Furthermore, the existing rule doesn't necessarily exclude the possibility to assess the misleading context of a given advertisement.

Therefore, EURO COOP suggests that the existing rule stay in force, but that it be completed to take account of concerns regarding misleading advertising.

Article 5: Ban on negotiation of credit and surety agreements outside business premises.

EURO COOP strongly supports this rule. Many problems for consumers concerning consumer credit derive from agreements made outside business premises. This is, we believe, the correct way to tackle the situation (as well as the rule on responsible lending set out in article 9) and will contribute to more transparency in consumer credit and will have positive reflexes regarding consumer indebtedness.

Article 6: Exchange of information and duty of advice.

EURO COOP welcomes the inclusion of the wording of Article 6 as a preventive safeguard measure that will enhance transparency in the transactions. However, we regret the exception in Article 6.4 that in practice opens a loophole allowing intermediaries to skip their obligations towards consumers.

Articles 7, 18 and 19.

As we said, in general, EURO COOP supports the proposed Directive. We would like however, to emphasise our strong support to the rules set out in article 7 (data collection and processing18 (ban on certain securities) and 19 (joint liability) given their importance to consumers.

Article 10: Information.

We strongly support the information requirements included in Article 10 but in order to facilitate a possible redress in case of default or termination of the contract, and the releasing of the consumer on his credit obligations in case of non-performance by the supplier, it is necessary to make imperative the inclusion in the agreement the goods or services being financed.

Article 11: Withdrawal.

The intention of this clause is to protect consumers by giving them the possibility to reconsider their decision without having to give any reason. In line with this argument we consider that the withdrawal period should begin at the moment the goods or service are effectively delivered to the consumer. Otherwise if the delivery does not fulfil consumer's expectations and 14 days have passed the right of withdrawal in the consumption contract will be ineffective in practice because the consumer will be tied to the credit agreement.

While EURO COOP believes that the right of withdrawal is essential to consumers, it should also be stressed that this right can not be exercised in an abusive way. Member States should adopt general legislation that prevents the abusive use of the rights established by the Directive. Otherwise we risk that retailers refuse to deliver the goods until the 14 day delay is over. This would be, in our view, not be in the best interest of consumers.

Article 16: Early repayment.

Early repayment (total or partial) is an important right given to the consumer for it allows him to discharge of his credit obligations before the end of the initially agreed deadline.

In general we do not see any reason for the creditor to ask an indemnity in this cases "given the scope for reinvesting capital on the international capital market". We do admit, however, that this rule may be adopted if the Commission can produce consistent and credible facts and figures that say otherwise. In this case, however, we would like to see an objective limit set out in the text of the Directive since the concepts that appear in the proposed document are too vague and undetermined.

Article 31: Penalties and Article 33: Burden of proof.

EURO COOP believes that it should not be up to the Member States to determine the penalties to infringements of the rules set out in the Directive or the burden of proof. We believe that this contradicts the objective of harmonising levels of consumer protection.

The qualifications set out in article 31 (effective, proportionate and deterrent) are too vague and undetermined. The proposal could, at least, set out a minimum quantitative standard for penalties.

The proposal should emphatically stress that the burden of proof in all the situations covered by article 33 lies on the creditor or/and credit intermediary.

Article 32: Out of court redress.

EURO COOP supports the development of cheap, user friendly Alternative Dispute Resolution (ADR) and redress procedures as the costs and time involved in seeking redress through the Courts can often deter consumers from taking actions. However, EURO COOP believes that the existence and use of ADR must not deprive consumers of their ultimate right to appeal to the Courts.

Finally, EURO COOP recalls the attention of the Commission to the fact that one of the major problems related to consumer credit, i.e. consumer indebtedness, still lacks a regulatory framework. We would like to see in the near future some kind of Community action on this matter that affects millions of consumers all over Europe.