Erhvervsudvalget 2019-20
ERU Alm.del Bilag 399
Offentligt
1. september 2020
Response by the Danish government to the roadmap for the review of
the Consumer Credit Directive (2008/48EC)
The Danish government welcomes the review of the Consumer Credit Di-
rective (CCD). In general, we support the Better Regulation and REFIT
agenda. It is important to have an ongoing focus on ensuring effective con-
sumer protection as well as reaping the potential benefits of the regulation
in the EU.
We find that is important that the directive continues to secure a high level
of consumer protection for consumers taking loans, for example by taking
new developments and other types of credits into consideration. In this re-
gard, the Danish government welcomes initiatives aimed at reinforcing,
streamlining and modernising consumer credit rules to ensure that they are
future-proof and protect consumers better than is the case today.
Protecting consumers from indebtedness
We find that the Commission should examine whether targeted legislative
action could be a way forward including:
extending the scope of the Directive to credits below EUR 200 and for
other types of credit that are currently outside of its scope;
simplified rules to ensure better-structured, well-timed pre-contractual
information, in line with the findings of behavioural insights, and;
harmonising standards and introducing common principles and rules
for assessing creditworthiness.
We also find that the Commission should examine how to adopt initiatives
corresponding with the new Danish legislation in regard to pay day loans
aiming to strengthen consumer protection by:
Banning all consumer credits with APR of more than 35 percent, that
are not related to a mortgage credit;
impose a ceiling on the total cost of 100 percent;
limiting the ability of loan providers to market their products, and;
ensuring consumer protection through the conclusion of private credit
agreements.
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With a cap on APR there are a clear limit on what a fair credit agreement
is, and a ceiling on the total cost of 100 percent sets an effective limit on
how much a consumer can be asked to pay for a loan. These initiatives
should furthermore be enforceable for private credit agreements.
The prohibitions on advertising of consumer credit can be justified in the
interests of protecting consumers, to stop the massive advertising of expen-
sive consumer credit (pay-day loans) that we face primarily online, on TV
and in public, and could contribute to the fact that fewer consumers will
end up in over-indebtedness.
Modernizing and updating the rules to secure consumer protection
Adjusting the scope of the CCD
In Denmark, we have seen that pay day loans have trapped many, particu-
larly young and underprivileged people, in unmanageable debt.
Today, the
CCD does not apply to credit agreements involving a total amount of credit
less than EUR 200 or more than EUR 75.000. As a result, the CCD does
not apply to many "pay day loans". It has therefore been necessary to in-
troduce national legislation in Denmark in order to secure consumer pro-
tection especially on “pay day loans”. We strongly urge the Commission to
adjusting the scope and thresholds of the CCD as it could contribute to bet-
ter protection of consumers e.g. by committing creditors to assess the con-
sumer’s creditworthiness also on “pay day loans”.
Affecting loan behavour through new digital solutions
The environment in which consumers act has changed because of digiti-
zation and new technologies. The CCD is based on earlier generation tech-
nologybut new business models challenge the traditional concept of credi-
tors and consumers. Consumers often search for credits online and technol-
ogy is playing an increasingly important role in the interaction between
consumers and creditors. Therefore, it is important that the CCD reflects
this and supports new digital solutions that empower consumers to compare
credits and prices from different providers.
Moreover, the access to big data and the ability to apply big data when
profiling consumers has changed and improved the methods used by the
creditors to assess their customers. However, the principle of the "need to
know" the customer remains in our opinion unchanged. Future regulation
should ensure that the application of new technologies and the use of data
is regulated appropriately to the benefit of consumers. The fundamental
rights of consumers should be ensured. Furthermore, it is important to in-
centivize creditors to develop new digital solutions for the benefit of con-
sumers.
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Updating information requirements in order for the consumer to under-
stand and act upon the information
Today, the pre-contractual phase and the credit agreements are character-
ized by a large number of information requirements. This can be burden-
some to the consumers, who are expected to read and understand extensive
contractual information in a purchase situation. There is a need to evaluate
all information requirements in the CCD in order to ensure that consumers
are not only provided with essential and beneficial information, but also
that the information is presented in such a simple manner and at the right
time in the purchase situation that the consumer can take in the information
and actually use the information.
The Danish government urges the Commission to look at the information
requirements in the CCD with the use of behavioral insights in order to
present the relevant information at the right time and in the right context
for the consumers and thereby ensure effectiveness of the information re-
quirements. In this regard, a stronger focus on digitalization is essential in
order to ensure that creditors can provide information, e.g. pre-contractual
information, to consumers in a sensible way that fits different devices and
media making the information more easily accessible for consumers.
Issues related to information requirements are similar in other areas of con-
sumer regulation. Therefore, amendments in the CCD should where rele-
vant be streamlined in other regulations to the furthest extent possible, e.g.
in the Distance Marketing of Financial Services Directive and the Mortgage
Credit Directive in order to to ensure greater coherence in the regulation.
Obligation to assess the creditworthiness of the consumer
Pursuant to Article 8 in the CCD, the creditor has an obligation to assess
the consumer’s creditworthiness based on “sufficient information”. How-
ever, the consumer credit directive does not contain any explicit guidelines
for what “sufficient information” is.
Since the beginning of 2018, the Danish Consumer Ombudsman has been
examining nine credit providers’ procedures
in respect of the creditworthi-
ness assessment. The Danish Consumer Ombudsman has among others
identified the following issues:
Some of the credit providers have been assessing
the consumers’ ability
to pay the ongoing costs in respect of the loan, and not whether the
consumer is able to repay the credit amount.
Some of the credit providers do not take the consumers existing debt
into account in their creditworthiness assessment of the consumer.
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Some of the credit providers do not base the creditworthiness assess-
ment on the consumer’s individual expenses but on statistical expenses.
We believe that this is not only a Danish issue. For that reason, the Danish
government finds that more specific criteria needs to be laid down, and that
all creditors should be obliged to assess adequately the creditworthiness of
the consumer. Identical requirements in EU in this regard are essential in
order to protect European consumers from credit agreements they cannot
afford. .
Moreover, Article 8 in the CCD states that "member
states whose legisla-
tion requires creditors to assess the creditworthiness of consumers on the
basis of a consultation of the relevant database may retain this require-
ment".
The Danish Authorities interpret this as a hindrance to establishing a data-
base and requirements to use such a database in the assessment of credit-
worthiness. However, with better insights into consumer behavior and in-
creased digitization there might be potential to introduce innovative, easy-
to-use-and-access databases that can increase consumer protection. For in-
stance, the Danish Gambling Authority has established a database of self-
excluded persons (aimed at consumers with a gambling problem) that pro-
viders of gambling services are required to consult before accepting a cus-
tomer. Such a database might be relevant to consumers who want to ex-
clude themselves from taking loans.
Clarifying the rules on early repayment
According to article 16 (1) of the CCD, the consumer shall be entitled at
any time to discharge fully or partially the obligations under a credit agree-
ment. In such cases, the consumer shall be entitled to a reduction in the
total cost of the credit.
The provision has been interpreted by the ECJ in its ruling in C‑ 383/18.
According to the ECJ this provision must be interpreted as meaning that
the right of the consumer to a reduction in the total cost of the credit in the
event of early repayment of the credit includes all the costs imposed on the
consumer. According to the ECJ, the right of a reduction of the total cost
of the credit cannot be restricted solely to costs explicitly connected with
the duration of the credit. It is therefore the interpretation that the consumer
is also entitled to a proportionate reduction of costs related to the setting up
of the consumer credit.
We find that this interpretation gives rise to uncertainty and a range of ques-
tions for the consumer. We encourage the Commission to clarify that the
right of reduction of the total cost of the credit only relates to the costs
expressly connected with the duration of the contract, eg. the interest. The
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Danish Government fears that the interpretation of the ECJ might lead to
higher interest rates in general in order to cover the cost related to the ini-
tiation of the credit agreement.
Evidence base, data collection and “better regulation” instruments
The development in behavioural insights has demonstrated that the massive
amount of information provided to the consumer might be counterproduc-
tive, especially if the timing and presentation during the purchase situation
is not taken into account. Several studies confirm that a large amount of
information may overwhelm and frustrate consumers, causing them simply
to skip reading the information. Modern consumer legislation should pay
attention to the development of behavioural insights, e.g. by giving the con-
sumer essential information, presented in a simple manner. Furthermore,
the information must be presented at the right time during the purchase sit-
uation making it useful for the consumer to compare credits and make the
right choice.
We acknowledge and welcome the Commission’s existing
work on behav-
ioral insights and recommend additional testing of the effects of infor-
mation requirements in the CCD on consumer behavior.
In 2018 the Danish Competition and Consumer Authority has conducted a
behavioral study to investigate how a simplification of the information re-
quirements in advertisement of consumer credits affects consumers. The
study was only concerned with advertisement of consumer credits, not in-
formation requirements at contractual levels.
Below is a summary of the results of the behavioral study by the Danish
Competition and Consumer Authority:
Consumers’ ability to remember financial information is significantly
enhanced with a simplified disclosure in TV media.
The ability to recall information depends on the run time of the adver-
tisement.
Increasing the visual saliency of financial information has a positive
effect on consumers’ ability to recall important information.
Consumers were to a large extent able to identify the better of two of-
fers in a scenario with current as well as simplified disclosure. Yet, the
simplified disclosure significantly reduced decision time and effort
needed to complete the choice task.
The choice experiment indicates that consumers use the annual percent-
age rate (APR) when choosing installment plans, but fail to recognize
that in cases of purchase on credit, where creditors specify a higher
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price for the product and appear with a lower APR, it may be a mis-
leading comparison parameter.
The perceived attractiveness of personal loan offers was not affected
by the simplified disclosure.
On that basis, the Danish government suggest that the information require-
ments in Article 4, regarding standard information to be included in adver-
tising, should be simplified. Furthermore, we suggest that the information
requirements could be met by using layered information.
Reduction of the key information presented in advertising can make the
initial comparison of credits across providers easier for consumers. This
can also improve the competition between creditors. We encourage the
Commission to further examine how the information can be structured and
presented in the light of the digitalization and use of different media for
advertising.
Standard European consumer credit information (Annex II)
The Standard European consumer credit information in annex II of the
CCD, intends to enable consumers to compare credits and prices. Never-
theless, we find that this tool is too complicated and detailed for consumers
and some of the information provided in the standardized information sheet
are not relevant in all Member States.
As mentioned above, insights from behavioral studies have shown that ex-
tensive information requirements are not always beneficial for consumers.
Moreover, the format of digital advertisement channels imposes re-
strictions in space for this information. As such, it is relevant to consider if
a reduction of information is beneficial for consumers.