As consumer consumption is a major engine of economic growth, it is important to take a close look at the latest legal developments affecting consumer credit.
The Consumer Credit Directive (2008/48/EC) ("Directive") has been implemented in Belgian law by the Act of 13 June 2010 ("Act") amending the Consumer Credit Act of 12 June 1991. The Act was published in the Belgian State Gazette on 21 June 2010 and, with one very limited exception, will enter into force on 1 December 2010.
The purpose of the Directive, which replaces a 1986 directive on the subject, is to harmonise the laws and regulations on consumer credit in the EU Member States in order to facilitate the emergence of a well-functioning internal market in consumer credit. Full harmonisation was deemed necessary in order to ensure that all consumers in the European Union enjoy a high and equivalent level of protection when entering into credit agreements. However, the Member States are given a certain degree of leeway in relation to a number of topics.
The Directive contains rules governing the relationship between offerors of credit agreements and consumers, including rules on advertising, the provision of information, the assessment of creditworthiness, and the content of credit agreements. The Directive also contains rules on credit intermediaries.
Changes to the scope of the Consumer Credit Act as from 1 December 2010
The Consumer Credit Act will apply to any credit agreement concluded with a consumer whose habitual residence is in Belgium provided the lender (credit offeror) (i) conducts professional activities in Belgium or (ii) by any means directs its activities solely at Belgium or at several countries including Belgium and, in either case, the credit agreement falls within the scope of the lender's activities.
In addition, various changes have been made to the categories of credit agreements that fall outside the scope of the Consumer Credit Act. For example, short-term credit agreements will only fall outside the scope of the Consumer Credit Act if they are interest free, have a term of two months or less, and the incidental charges on the credit do not exceed EUR 50 per year.
Upon the entry into force of the Act, light-touch regulation will apply to the following:
- credits of less than EUR 200 or more than EUR 75,000 (the latter threshold has been raised from EUR 20,000);
- under certain circumstances, overdraft facilities, where the credit must be repaid within one or three months;
- credit agreements concluded with an investment firm or credit institution for the purpose of allowing the investor to carry out a transaction in financial instruments.
Credit offerors' obligations
- Advertising: Article 5 of the Consumer Credit Act, laying down various requirements concerning the advertising of credit products, will be totally revised to provide that any advertisement for a credit agreement which mentions an interest rate or any figures relating to the cost of the credit to the consumer must include certain standard information in a clear, concise and prominent way by means of a representative example. The standard information required includes the borrowing rate, the total cost, the total amount of credit, and the annual percentage rate. All other advertisements for consumer credit products must include the following mention (in French or Dutch): “Watch out: borrowing money costs money.” Most provisions of Article 6 of the Consumer Credit Act, which prohibits certain types of advertising, will remain unchanged.
- Mandatory provision of pre-contractual information: Article 11 of the Consumer Credit Act will be replaced by detailed rules intended to ensure that consumers are fully informed by both lenders and credit intermediaries prior to entering into a credit agreement. The new article will list the information that must be provided in a standard format to consumers in good time in order to allow them to compare different offers and take an informed decision on the credit agreement. This information shall include the type of credit, the creditor's identity and address, the total amount of the credit and the conditions for drawdown, the term of the credit agreement, the borrowing rate, the annual percentage rate, the total amount payable by the consumer, the interest rate for late payment, a warning on the consequences of default, etc.
- The credit agreement: whereas presently a credit agreement must be entered into by means of a written document signed by all parties, the Act provides that a credit agreement need only be on paper or another durable medium and that signature by electronics means is allowed. The Act also contains a longer, more detailed list of the information which must be included in a credit agreement.
- Right of withdrawal: the Act extends the period given to the consumer to withdraw from the credit agreement from 7 to 14 days from the date of conclusion of the credit agreement or from the date on which the consumer receives the contractual terms and conditions and any other information to which he/she is entitled. If the consumer exercises this right, he/she must repay the capital and accrued interest to the lender within 30 days.
- Early repayment: the rules applicable to early repayment will be amended to provide that the consumer is entitled to a reduction in the total cost of the credit while the lender is entitled to fair and objectively justified compensation, subject to a cap set forth in the Consumer Credit Act, for possible costs directly linked to the early repayment, provided the early repayment occurs within a period for which the borrowing rate is fixed.
- Termination of open-end credit agreements: a new article will be inserted in the Consumer Credit Act providing that consumers may terminate at any time and free of charge a credit agreement that has yet to reach maturity. If a notice period is agreed, it may not exceed one month. The creditor may terminate the agreement prior to maturity by giving two months’ notice, if a provision to this effect is included in the agreement itself.
The Act also modifies the provisions applicable to linked credit agreements and repeals specific rules applicable to certain types of credit agreements, i.e., agreements for instalment sales (vente à tempérament/verkoop op afbetaling), leasing agreements (crédit bail/financieringshuur), instalment credits (prêt à tempérament/lening op afbetaling), and credit lines (ouverture de crédit/kredietopening).
The Act also provides for a number of new continuous information obligations applicable to creditors.
Rules on supervision
The only change made by the Act to the current provisions of the Consumer Credit Act on the licensing and registration requirements applicable to creditors and consumer credit intermediaries is to provide that the Minister of Economic Affairs or the latter's representative may cancel any licence or registration granted to a creditor or credit intermediary if it does not start activities within 12 months from the date of the licence or registration.
According to the legislative history, the provisions on licensing and registration will be amended by a separate act in order to provide, amongst other things, that the Banking, Finance and Insurance Commission (Commission bancaire, financière et des assurances/Commissie voor het bank-, financie- en assurantiewezen or “CBFA”) shall replace the Federal Public Service of Economic Affairs as the competent supervisory authority. However, to date, no bill or proposal has been presented on this subject and it is thus not clear whether this change will be made.
The amended provisions of the Consumer Credit Act will apply to credit agreements concluded before the entry into force of the Act, except for those provisions dealing with advertising, pre-contractual information, the conclusion of credit agreements, termination rights, and the repeal of specific rules applicable to certain types of credit agreements.
Any licence or registration obtained before the entry into force of the Act will remain in force until its renewal date, pursuant to Article 79 of the Consumer Credit Act.
Specific transitional rules also apply to the registration of certain types of credit agreements with the Central Individual Credit Register.
This article summarises certain recent changes to the Consumer Credit Act. It is not intended to constitute legal advice and does not purport to provide a complete overview of the subject matter to which it relates.