Consumer credit websites - EC investigation - guide12 January 2012
by eub2 -- last modified 13 January 2012
Were you ever about to sign a contract for a personal loan, credit card, or other consumer credit and discovered that it was all working out more expensive than you had first expected? An EU-wide investigation of websites offering consumer credit took place to check whether consumers are receiving the information to which they are entitled under EU consumer law before signing a consumer credit contract. National enforcement authorities checked more than 500 websites across the 27 Member States plus Norway and Iceland. They flagged 70% (393) of sites for further investigation in relation to the following main problems: the advertising did not include the required standard information; the offers omitted key information that is essential for making a decision; the costs were presented in a misleading way. National enforcement authorities will now contact financial institutions and credit intermediaries about suspected irregularities and ask them to clarify or take corrective action. The sweep operation checked in particular how business is applying the Consumer Credit Directive (recently transposed in Member States), which aims to make it easier for consumers to understand and compare credit offers.
SECTION 1. THE CONSUMER CREDIT SWEEP
The Consumer Credit Sweep is an EU-wide investigation of websites offering common consumer credit to consumers (personal loans, credit cards, car loans). National enforcement authorities examined more than 500 websites across the 27 Member States plus Norway and Iceland during the last week of September 2011 to see where consumer rights are being compromised or denied.
What is a Sweep?
An "EU-sweep" is a joint EU enforcement action to check for compliance with consumer protection laws. It involves a targeted and coordinated check on a particular sector. National enforcement authorities then follow up, contacting the noncompliant business operators demanding that they come into line with the relevant requirements. Legal action can be taken against operators who violate EU consumer law. National authorities investigate and take enforcement actions for national cases. For cross-border cases, enforcement authorities request assistance from colleagues in other Member States (e.g. where the trader operates from another country). This is done via the Consumer Protection Co-operation Network of national enforcement authorities from 27 Member States, Norway & Iceland.
Why were consumer credit websites picked up for this sweep?
We know from our Consumer Markets Scoreboard that the financial services market (including consumer credit) is underperforming for consumers. Also, complaints have been made to the European Consumer Centres (711 in 2010). The 2011 Sweep offered an opportunity to verify to what extent the financial sector is abiding by the information obligations imposed by the Consumer Credit Directive. This law (recently transposed in Member States) introduces harmonised requirements on information to be included in advertising consumer credit and to be provided to consumers in the pre-contractual phase as well as in the credit agreement itself. It aims to make it easier for consumers to understand and compare offers.
What sanctions can be taken?
EU consumer laws are enforced – and sanctions and penalties are therefore set – at national level. Measures can include contacting a company demanding it change or cease an illegal practice, imposing and collecting fines. Enforcement authorities are obliged to take measures (repeatedly if need be) until the infringement has ceased.
SECTION 2. RESULTS OF THE INVESTIGATION BY MEMBER STATE
Of the 562 websites checked, only 30% passed this sweep test for compliance with the relevant EU consumer rules and 70% of sites (393) were flagged for further investigation.
Member States were free to choose the number of sites to check (whether to optimise resources or for other reasons) and so some checked more sites than others. For the same reasons, websites found to be failing in the past were more likely to be assessed.
SECTION 3. ABOUT THE CONSUMER CREDIT SWEEP
Who participated in the sweep exercise?
All 27 EU Member States plus Norway and Iceland participated2.
Link to national press contacts
Why does the sweep need to be done with pan EU co-operation?
Deceptive online selling practices often concern operators located abroad. They can be detected and tackled more effectively with EU wide co-operation. Under the Consumer Protection Cooperation Regulation, European authorities co-operate together to suppress cross border illegal practices. The network may examine any problematic sector in the EU at the same time. It may share experience and exchange best practices or tackle emerging new threats. This cooperation reduces fragmentation in the European internal market. Harmonised rules and enforcement are beneficial for consumers as it provides comparable and fair choices. It is also good for reputable business as enforcement tackles unfair or rogue practices ensuring a level playing field and fair competition.
Which types of consumer credit products were examined in this sweep?
Given the wide range of different consumer loans/credits on the market, this sweep was limited to the most common types of consumer credit falling within the scope of the Consumer Credit Directive. Sweepers were free to decide how many types of credit would be checked on any one site.
Revolving credit: this is open-ended credit where the credit line revolves – for example you have a credit ceiling of 1000€, you use 200€ and once this is repaid the 1000€ ceiling is available once again. Examples of revolving credits are overdrafts and credit cards.
Credit cards – this is a type of revolving credit.
Personal loans – this is a credit agreement which is put at the disposal of a consumer who agrees to pay back the amount in periodic payments.
Lump sum – this is a one off personal loan, where the consumer receives an amount, which is then typically paid back in instalments and with a fixed duration.
Car finance – this is a credit serving exclusively to finance the purchase of a car.
Were sales of mortgages examined in this sweep?
No, mortgages fall outside the scope of the Consumer Credit Directive which is the principal piece of legislation forming the basis of this sweep. There are no common rules on mortgages but the Commission has proposed a Directive which is currently under discussion.
Which type of institutions did the Sweep check?
This Sweep investigated two types of operator: financial institutions and credit intermediaries. Member States were free to choose which websites to check and the number of websites.
Financial institutions are organisations (including banks) providing different types of financial services to their customers. They range from the high street banks to the more specialised credit providers. For the purposes of this Sweep, enforcers concentrated only on providers of consumer credit.
Credit intermediaries facilitate the conclusion of credit agreements between the consumer and the creditor by helping the consumer do preparatory work, by presenting offers to the consumer or by helping the consumer to conclude the credit agreement. They do not provide credit themselves.
What was checked?
The consumer credit sweep focused on essential information requirements which the trader must comply with when advertising and selling consumer credits on-line (for Sweep Plus please see point 3.2. below). The following information was verified:
information provided in advertising consumer credit
main characteristics of the offer
total cost of the offered consumer credit inclusive of all foreseeable charges and taxes, and displayed in a fair way
Further information - EC press release
Source: European Commission