Select Committee on European Scrutiny Eighteenth Report


11 Consumer credit

(23803)

12138/02

COM(02) 443

Draft Directive on the harmonisation of the laws, regulations and administrative provisions of the Member States concerning credit for consumers

Legal baseArticle 95 EC; co-decision; QMV
DepartmentTrade and Industry
Basis of considerationMinister's letter of 2 April 2004
Previous Committee ReportHC 152-xli (2001-02), para 6 (6 November 2002)
To be discussed in CouncilNot known
Committee's assessmentPolitically important
Committee's decisionCleared

Background

11.1 The existing Consumer Credit Directive,[20] intended to create a common market in credit and to set minimum standards for consumer protection, is still substantially as drafted in the 1980s. After consultations, launched in June 2001, the Commission concluded that the current Directive is no longer in step with the current credit market. It said there has been little growth in cross-border transactions. It decided that the Directive needs to be revised to allow consumers and companies to take full advantage of the single market.

11.2 In September 2002 the Commission proposed this draft Directive which would move from minimal harmonisation to, with some limitations, total harmonisation. It claimed this would better provide a high level of consumer protection and promote a single credit market. The Directive would include:

  • definition of the Directives scope, with a split between consumer credit and mortgages for property purchase. Only those mortgages taken out to buy or renovate a property would be excluded. But lending for equity release or debt consolidation purposes, and probably straightforward remortgages, would be subject to the Directive;
  • more stringent controls on credit intermediaries; and
  • improvements to lenders' access to adverse data on a borrower to permit a more accurate assessment of risk and ability to pay; to information for the borrower; to transparency of agreements; and to consumer protection measures, including a "responsible lending" requirement and a universal 14-day right of withdrawal.

11.3 When we considered the document in November 2002 we noted that the Government's Explanatory Memorandum amply demonstrated that there was much to be clarified or amended in the draft if the new Directive was properly to meet the needs of UK lenders and borrowers. We said that, before considering the document further, we would like a report on the outcome of the Government's planned consultations, a Regulatory Impact Assessment and a report on progress in the negotiations on the text.

The Minister's letter

11.4 The Minister for Employment Relations, Competition and Consumers, Department of Trade and Industry (Mr Gerry Sutcliffe), writes now to report developments since then. He tells us:

"We have held substantial informal consultations with UK Industry and Consumer groups over the last 18 months, and set out our general approach in the White Paper 'Fair, Clear and Competitive: the Consumer Credit Market in the 21st Century'[21] published in December 03. We have however not thought it sensible at this stage to carry out a written consultation nor do a Regulatory Impact Assessment on the Consumer Credit Directive. This is because it was clear that the proposal would either be withdrawn or altered substantially, and it would therefore be better to delay the consultation and RIA until a more realistic proposal was agreed.

"Given the long delay, I felt that it would be helpful to update the Committee on the situation. The European Parliament tried but failed to get the European Commission to withdraw the proposal. The Rapporteur also failed to convince the European Parliament to reject the proposal, and a first reading is now taking place.

"As anticipated, the Legal Affairs Committee of the European Parliament agreed amendments to the Directive which substantially alter the proposal. These will be considered by the Parliament at its Plenary in April 2004.

"Once the European Parliament first reading has been completed, the Commission will re-draft the proposal to take on board their comments. I expect this modified proposal to differ significantly from the original Commission proposal, and a written consultation and an RIA will be carried out on the proposal at that stage. I will forward you the results of both once they have been completed."

Conclusion

11.5 We are grateful to the Minister for bringing us up-to-date on this proposal. Given the expectation that the proposal will not proceed in its present form we now clear the document.

11.6 But we will wish to consider further the substance of the proposal when a revised draft Directive is deposited, together with the outcome of the consultation and the Regulatory Impact Assessment the Minister promises us.


20   Council Directive 87/102/EEC, OJ No. L 42, 12.2.87, p.48. Back

21   Cm 6040, December 2003. Back


 
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