The EU Directive on credit agreements for consumers (2008/48/EC) has been implemented in the Netherlands. The implementation act ("Act") entered into force on 25 May 2011. The Act introduces a new chapter on consumer credit agreements into the Dutch Civil Code ("DCC") and amends the Financial Markets Supervision Act ("FMSA") and the Consumer Credit Act ("CCA"). The Decree on Conduct of Business Supervision of Financial Undertakings FMSA has also been amended ("Decree"). As the amendments to the Decree have not yet been published, we have used the consultation version of the amending decree ("Consultation Version Decree").

The new rules on consumer credit agreements will bring a number of changes that will have an impact on credit providers. We highlight those changes below.

Scope  

Dutch Civil Code

The new chapter 7.2A DCC will not apply to agreements concerning:

  • credit secured by a mortgage
  • credit for acquiring or retaining property rights in land or in an existing or planned building  
  • credit in the form of a permitted overdraft which has to be repaid within one month  
  • credit provided free of interest and other charges  
  • credit repayable within three months and for which only insignificant fees are charged (see more on this below)  
  • some other forms of credit which have also been excluded from the scope of the Directive  

To protect consumers, the legislator has opted for bringing the following agreements under the scope of chapter 7.2A DCC even though the Directive did not require this:

  • credit involving a total amount of less than EUR 200 or more than EUR 75,000
  • securities credit (but note that this type of credit is subject to a mitigated regime – see below)  

Financial Markets Supervision Act

The Act changes the existing scope of the FMSA, as set out in section 1:20. Whereas previously all credit repayable within three months fell outside the scope of the FMSA, now only credit repayable within three months and for which only insignificant fees are charged is excluded.

The other exceptions from applicability of the FMSA are retained. However, the terminology used is adjusted to the Directive and in some instances this changes the scope of an exception. Previously, for example, the FMSA did not apply to credit offered by public bodies to fulfil their statutory duties. Under the amended FMSA, such credit only falls outside the scope of the FMSA if the credit is offered to the consumer at terms more favourable than those prevailing on the market.

The legislator has decided, for various reasons, not to exclude the following types of agreement from the scope of the FMSA, even though the Directive would have allowed this:

  • credit secured by a mortgage
  • credit for acquiring or retaining property rights in land or in an existing or planned building  
  • credit involving a total amount of less than EUR 200 or more than EUR 75,000  
  • credit provided free of interest and other charges  
  • credit in the form of a permitted overdraft which has to be repaid within one month (but note that this type
  • of credit is subject to a mitigated regime – see below)  
  • securities credit (but also subject to a mitigated regime – see below)  

Financial services provided in connection with these types of credit are therefore subject to the supervision under the FMSA.

Consumer Credit Act

As a result of the introduction of chapter 7.2A DCC, a large number of provisions in the CCA have been abolished and transferred to the DCC. An important change is that the CCA now applies to all credit transactions, regardless of the total amount of credit. Previously, the CCA only applied to transactions involving an amount of credit less than EUR 40,000.

The only exception to this rule is that transactions involving credit repayable within three months are only subject to those CCA rules that relate to the form and amount of the credit fee.

Repayment within three months and insignificant charges

As explained above, credit agreements providing for repayment within three months and only insignificant charges for the consumer fall outside the scope of both the DCC and the FMSA. Where previously credit providers were able to stay outside the scope of the FMSA if the credit was repayable within three months, the added 'insignificant charges' wording may now preclude this. If credit repayable within three months is offered and more than insignificant charges apply, the provider will be subject to all supervisory rules on offering consumer credit, such as the requirement to obtain a licence and the requirements for supplying pre-contractual information.

Insignificant charges

The Explanatory Memorandum to the Act provides hardly any interpretation of the term "insignificant charges". It indicates that costs can be insignificant in absolute terms or in relative terms. In one specific case, the AFM has been willing to provide some additional interpretation. In that case, it indicated that costs could be considered "insignificant" if they met one of the following criteria:

  • the costs do not exceed EUR 50 (insignificant in absolute terms)
  • the costs do not exceed 1% of the total amount of credit (insignificant in relative terms)  

The Explanatory Memorandum indicates that the term "charges" means interest as well as any other charges "whatever the category they fall under". In determining whether charges are insignificant or not, only those charges are relevant that form part of the total cost of the credit for the consumer (as referred to in section 7:57 paragraph 1 DCC). Under section 7:57 paragraph 2 DCC, charges in connection with ancillary services do not form part of the total cost of the credit for the consumer if entry into the services contract is not a prerequisite for obtaining the credit. The costs charged for such ancillary services are therefore not relevant in establishing whether the charges payable are insignificant.

If a credit provider wants to stay outside the scope of legislation on the basis that the credit is repayable within three months and only insignificant charges are payable, it is important to indicate clearly which charges are linked to the credit and which charges are linked to other (optional) ancillary services. In addition to the cost structure, the provider must also clearly specify the ancillary services offered. It is important to make clear that use of those ancillary services is not a prerequisite for obtaining the credit, but is really of an optional character.

Exemption for payment services providers

Payment services providers who only offer credit meeting the criteria of section 40b of the Decree on Prudential Rules FMSA – such as the credit having a maximum term of 12 months and being provided as additional credit in connection with the execution of the payment transaction – and do not fall outside the scope of the FMSA on any of the grounds set out in section 1:20 FMSA will, strictly speaking, need a licence as a credit provider in addition to their licence as payment services provider. This double licence requirement is unnecessary as the licence requirements for providing payment services are in fact more extensive than the requirements for credit providers. The Ministry of Finance recognises that the double licence requirement is unnecessary and has assured us that an exemption will be introduced so that payment services providers will no longer need to obtain a second licence as credit provider. Payment services providers making use of this exemption will still need to meet the ongoing obligations that apply in general to providers of credit.

Assessment of creditworthiness

Credit providers have to carry out a creditworthiness assessment before entering into a credit agreement. The assessment entails obtaining information about the consumer's financial position and considering whether it is a sound decision for the consumer, with a view to preventing excess debt, to enter into the credit agreement. The creditworthiness assessment already existed before the Act.

A new aspect is that the assessment should also take place if a significant increase in the existing credit limit or amount of credit takes place. Whether an increase should be regarded as significant will depend on the specific circumstances. Where a consumer with a EUR 5,000 loan has already reached his maximum, an increase of EUR 100 will be deemed significant and trigger the need for a new creditworthiness assessment. Even if each individual increase in an existing credit agreement is not deemed a significant increase, all increases together may nonetheless constitute a significant increase.

Also new is the provision that if a credit application has been turned down after a credit registration system has been consulted – such as the Bureau Credit Registration (Bureau Krediet Registratie) – the credit provider must inform the consumer immediately and free of charge of the outcome and the details of the registration system. An explanation by the credit provider could, for instance, be that consultation of the registration system has shown that there are registered payment arrears in connection with another personal loan of the consumer. If the consumer wants more detailed information – e.g. who the provider of that other personal loan is – the consumer can contact the credit registration system directly.

Standard information to be included in advertising

Any credit advertising which refers to a rate of interest or to any figures concerning the cost of the credit for the consumer must also contain information about the amount, duration and payment of the credit and the credit fee. A new requirement is, for example, that the fixed or variable rate of interest must be mentioned.

The Consultation Decree suggests that the credit warning "Borrowing Money Costs Money" (Geld lenen kost geld) will continue to be a requirement and should be included in any advertising that relates to credit. The question arises whether this is entirely in line with the Consumer Credit Directive, as the latter indicates that national rules which deviate from the harmonised provisions, such as the credit warning, may not be maintained. The Directive does, however, state that the member states are free to include information requirements in their national laws for advertising that gives no information at all about the costs of the credit. This appears to lead to a system in which inclusion of a credit warning may be required in some cases but not in others.

An important consequence of the new information requirements for advertising is that a credit provider can no longer advertise promotional rates. This is because credit providers have an obligation always to specify the highest possible interest that could apply to the credit offered.

Pre-contractual information

The current credit prospectus has been replaced by the Standard European Consumer Credit Information ("SECCI"). The required content, form and lay-out of the SECCI are set out in detail in articles 5 and 6 and Annex II of the Directive, and the Dutch rules refer to this. The SECCI must be provided to the consumer "well before" (geruime tijd) before the consumer is bound to the credit agreement or to an offer. According to the Explanatory Memorandum to the Act, what constitutes "well before" will depend on the individual circumstances, whereby the complexity of the credit will probably play a role. In any event, it is important that the consumer will have ample time to understand the provider's offer and to compare it with offers from other providers if he wants to. Thus, the consumer will be able to take a well-informed and sound decision on whether to enter into the credit agreement. A credit provider that fails to meet the requirements for the SECCI or is too late in supplying this information to the consumer will be deemed to be engaged in unfair trading practices.

The pre-contractual information requirement will also mean that the credit provider will, in principle, be bound to the information contained in the SECCI. As long as the information in the SECCI is still valid, the credit provider may not impose any different conditions in the credit agreement. A consumer can rely on the rates and terms set out in the SECCI. And conversely, if a term has been included in the credit agreement that was not mentioned in the SECCI, the consumer may reject this term. It should be noted, however, that the SECCI should not be regarded as an offer that has to be accepted by the consumer. The consumer will first have to submit his own credit application to the credit provider.

Credit agreement

A credit agreement with a consumer must be entered into on paper or another durable medium, for example a PDF file sent by e-mail, which the consumer can file. Oral consumer credit agreements are void. Section 7:61 paragraph 2 DCC outlines what information the credit agreement must contain. This includes information about the borrowing rate, the conditions governing the application of this rate, the duration of the credit agreement and, where available, any index or reference rate relating to the initial rate, as well as the periods, conditions and procedures for changing these. If the credit provider fails to meet these information requirements, the consumer can nullify the credit agreement.

In addition, the consumer may terminate a credit agreement during a cooling-off period of 14 calendar days without giving a reason. This period starts running from the day that the credit agreement is entered into or from the day on which the consumer receives a copy of the credit agreement, if that day is later than the other date. If the credit agreement does not contain the information required by the DCC, the period will not start running until the consumer has received all information. A consumer may therefore terminate a credit agreement without stating any reason for as long as he has not been given all of the information required by law.

Annual rate of charge

The annual rate of charge means the total cost of the credit to the consumer – plus, possibly, cost items required by the Act - expressed as an annual percentage of the total amount of credit. The definition has been included in the DCC and the Decree. The definition in the Decree differs from the DCC definition as it also applies to credit secured by a mortgage. The annual rate of charge replaces the effective borrowing rate (effectief kredietvergoedingspercentage).

The annual rate of charge must be included in the SECCI, the credit agreement and any advertising that gives information on the rate of interest or states amounts with regard to the cost of the credit. To allow a comparison to be made between the various providers from different Member States, Annex I of the Consumer Credit Directive sets out a fixed calculation method. The DCC indirectly refers to this calculation method. The Decree will incorporate Annex I verbatim in Annex A.

Mitigated regime

Permitted overdraft

Financial services that relate to a permitted overdraft (debit facilities) repayable within one month and for which more than insignificant charges are payable, are subject to a mitigated regime under the FMSA. Only the rules on mandatory (SECCI) and voluntary pre-contractual information (advertising) and the rules on maximum credit fees apply. As mentioned above under Scope, the new consumer credit chapter 7.2A in the DCC does not apply to this type of credit at all.

Financial services that relate to permitted overdrafts repayable within three months and for which more than insignificant charges are payable are subject to the rules on the creditworthiness assessment, in addition to the above rules regarding information and maximum credit fees.

Although permitted overdrafts repayable within three months are subject to chapter 7.2A DCC, they benefit from a mitigated regime. Among other things, there are less stringent pre-contractual information requirements and the consumer does not have the right to terminate a credit agreement within 14 days without giving a reason.

Securities-backed credit

A definition of a securities-backed credit agreement has been introduced into the DCC – in section 7:57 paragraph 1 under o. It is an agreement pursuant to which:

  1. continuous credit, secured by a securities portfolio, is granted or promised, allowing the consumer to withdraw on different dates as long as the outstanding balance does not exceed a specified credit limit;  
  2. the consumer can use the credit to execute transactions in financial instruments; and  
  3. the credit provider is involved in those transactions.  

During the legislation process, consultation feedback from the market led to the Ministry of Finance drawing up tailor-made rules for securities-backed credit. The starting point was to apply the important consumer protection elements of the Consumer Credit Directive equally to securities-backed credit agreements, while simultaneously having regard to the specific features of securities-backed credit. These tailor-made provisions mean that all rules have to be observed when entering into securities-backed credit agreements but that in some areas the rules are mitigated, such as:

  • less pre-contractual information needs to be provided to the consumer. For example, the total amount of credit and the annual rate of charge do not have to be mentioned in advertising and the SECCI  
  • the securities-backed credit agreement needs to contain less and different information  
  • the right to terminate the agreement within 14 calendar days without giving a reason does not apply  

Transitional provisions

The new rules apply to all credit agreements entered into on or after 25 May 2011. Agreements concluded before 25 May 2011 are subject to the former rules, except for open-ended agreements. These agreements are subject to a number of the new DCC rules, such as the consumer's right to terminate the credit agreement at no cost and certain information requirements during the term of the agreement.