Consumer credit may be granted only after the creditor has assessed the consumer's creditworthiness. The assessment must be based on sufficient information, as stipulated in Article 8 and Recital 26 of the EU Credit Directive (2008/48/EU) and Section 12 of the Consumer Credit Act (2010:1846). However, neither the directive nor the Swedish legislation defines what constitutes 'sufficient information'.
The legislative history of the Consumer Credit Act indicates that information can be obtained directly from the consumer, but also from a database or another register. It stipulates that several sources of information may need to be used, although which sources are required to be used in each case may be determined in the context of the requirement of sufficient information.(1) Further, the term 'sufficient information' is taken from the Credit Directive. Article 8.1 of the directive provides that the member states must ensure that the creditworthiness assessment is made on the basis of sufficient information. Such information can be obtained directly from the consumer when appropriate and where suitable on the basis of information from a relevant database.
The Consumer Agency has interpreted Section 12 of the Consumer Credit Act and its legislative history. On the basis of such interpretation through supervisory decisions and general guidelines, the agency has expressed that the creditor must obtain information directly from the consumer in the creditworthiness assessment. This was recently debated in a case at the Administrative Court where the Consumer Agency argued that a creditworthiness assessment based on details from a creditor's scoring model did not give sufficient information and issued a warning combined with a penalty fee against the creditor. The court agreed with the agency's conclusions on the interpretation of Section 12 of the Consumer Credit Act. However, the case was appealed and the Administrative Court of Appeal recently decided on whether the creditworthiness assessment was based on sufficient information.(2) The Administrative Court of Appeal referred to a judgment by the European Court of Justice (ECJ),(3) in which the ECJ concluded that Article 8.1 and Recital 26 of the Credit Directive, read together, give the creditor a margin of discretion in each assessment of whether the available information is sufficient to clarify the consumer's creditworthiness and if the information needs to be compared to other information. The court did not agree with the Consumer Agency that the creditor needed to obtain information directly from the consumer. It further established that Section 12 of the Consumer Credit Act allows for discretion in each case regarding whether the available information, on which the creditworthiness assessment is based, constitutes sufficient information.
On October 12 2016 a committee of inquiry published a report regarding new rules on the market for consumer credit. The main purpose of the committee's remit was to attain stronger consumer protection and reduce the risk that consumer loans lead to excessive indebtedness. It focused on instant loans with a high effective interest rate from 100% up to several thousand percent. The new legislation is proposed to enter into force on July 1 2018.
The committee of inquiry has found some risks in today's creditworthiness assessment. Information provided directly by the consumer regarding his or her cost of living may be incorrect or insufficient. Further, the creditor may not always have the possibility to check the authenticity of the information provided. Hence, the result might be that a consumer does not in fact have the ability to repay, even though the assessment shows the opposite. Following the identified deficiencies, the committee discussed the possibility to impose further requirements, consisting of a higher safety margin in the calculation model of the consumer's repayment capacity. With a safety margin in the calculation model, the creditor will require the consumer's income to exceed the costs resulting from the credit in question by a certain margin. The proposed wording of the report indicates that such margin can be set in regulations according to delegation from the government. The committee argues that such requirement would not conflict with the Credit Directive as it does not suggest any further requirement of what information must be obtained for a creditworthiness assessment. The report was published before the Administrative Court of Appeal judgment and the identified risks were made based on the interpretation of Section 12 of the Credit Consumer Act, consistent with the one represented by the Consumer Agency.
Following the decision, the interpretation of the act is consistent with the Credit Directive and does not set out any further requirements. An allowance for discretion in each case can make it difficult for creditors to anticipate what is required of them and moreover create a suitable creditworthiness assessment model. To insert a safety margin in the calculation model may not exceed the requirements set out in the directive; however, it might result in the consumer not being granted credit even though he or she may have met the repayment requirements without application of the safety margin.
The Consumer Agency has appealed the decision, hence it remains to be seen whether the Supreme Administrative Court of Appeal will grant leave to appeal and whether it will give the term 'sufficient information' a different interpretation.
For further information on this topic please contact Sara Göthlin or Louise Wedar at Advokatfirman Törngren Magnell KB by telephone (+46 8 400 283 00) or email ([email protected] or [email protected]). The Törngren Magnell website can be accessed at www.torngrenmagnell.com.
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