One year after the new EU Consumer Credit Directive (Directive 2023/2225) came into force, questions remain: When will it be implemented? What will be regulated? How is the business community reacting? The directive brings significant changes and extensions in an effort to strengthen consumer protection and meet the challenges of digitization. But does it really provide consumers with the desired added value and protection, or does it prevent innovative, successful business models – from which consumers benefit – via overregulation?
Key Contents of the Directive
The new directive significantly expands the scope of application for consumer credit and covers loans of less than €200, as well as free loans and leasing transactions. This extension aims to ensure that smaller and previously unregulated forms of credit are protected by the directive. Overdrafts are now also subject to more comprehensive regulations. And with the regulation of free loans, purchases on accounts and the popular “buy now pay later” offers will be covered by the Consumer Credit Directive. This payment method, which is particularly popular in Germany, is regarded as interest-free credit. However, there are certain exceptions and regulations that affect purchases on accounts. Small- and medium-sized companies can continue to offer purchases on accounts without having to comply with the stricter regulations if it is free, processed within 50 days, and does not involve external service providers. However, the stricter rules apply to larger retailers.
The goal of the directive is to prevent consumers from becoming over-indebted, for example, because of excessive financial demands, high interest rates, or unfair contract terms that were not sufficiently publicized before the contract was concluded. The “buy now, pay later” offers in particular were a thorn in the side of many consumer protection organisations because of the threat of “unnoticed” financial overstretching of buyers.
The following measures and obligations apply under the new directive to protect consumers:
- Pre-contractual information obligations will be tightened to inform consumers even more comprehensively about the relevant contractual conditions
- The introduction of interest rate caps
- Duties of good conduct for the lender, particularly for fair contractual conditions
- Mandatory assessment of the consumer’s creditworthiness to ensure they can repay the loan
- Guidelines on advertising for consumer loans: all advertising must include a statement that taking out a loan is subject to a fee. Misleading advertising statements are prohibited.
The Consumer Credit Directive must be transposed into national law by EU Member States within two years (by November 2025). The regulations can then be expected to apply starting November 2026. A draft law for national implementation in Germany is not yet available.
Reactions and Criticism
The level of protection for consumer loans is thus adjusted to match the level of protection for residential property loans. However, comparability is very limited if a purchase on account for €30 can fall under the stricter regulations. This was precisely what consumer protection organisations were calling for as the burden on consumers often leads to financial overload in the total amount because of many smaller purchases. Nevertheless, the administrative burden for a creditworthiness check alone for loans of less than €200 is unequally high. A lower limit here would have been desirable for the credit industry.
While consumer advocates welcome the new regulations because of their broad scope of application and the fixed introduction of interest rate caps, the directive has been strongly criticized by the banking industry. Considerable interests and legitimate concerns of banks and merchants have been largely ignored. For example, credit and payment institutions fear considerable additional work and costs, especially because of the mandatory creditworthiness checks that are required for even the smallest loans. Due to the very different payment habits and circumstances of EU consumers and, therefore, very different national interests, it remains to be seen how differently the directive will be transposed into national law, which is likely to lead to additional implementation and administrative costs for players in the individual EU Member States.
