CREDIT AGREEMENTS FOR CONSUMERS (13193/05)
Letter from Rt Hon Ian McCartney MP, Minister
for Trade, Investment and Foreign Affairs, Department of Trade
and Industry/Foreign and Commonwealth Office to the Chairman
Further to my letter of 29 September 2006[124]
in response to your Report on EM 13193/05 (Consumer Credit Directive),
I am updating your Committee and Sub Committee G on recent developments.
Although I cannot say with absolute certainty,
we believe the Finnish Presidency intend to table the proposed
Directive for political agreement at the Competitiveness Council
on 5 December. Given that the proposal has not received scrutiny
clearance yet I thought it sensible to alert you to this possibility.
Should the proposal be tabled for political
agreement, the choice in terms how the UK should vote is not entirely
straightforward. As I have said during earlier correspondence,
in particular, the Government shares the Committee's concern about
the need for any amending Directive to maintain existing high
levels of consumer protection and make a real contribution to
the opening up of markets. We also believe a full impact assessment
should have been undertaken.
Since I wrote on 29 September in response to
your Report published on 5 July, we have published the Government
response to the supplementary consultation undertaken earlier
this year. A copy is attached (not printed). We have also been
working hard to secure a number of improvements to the text. Progress
has been made in a number of areas that have been of particular
concern. In particular:
HOME PURCHASE
PLANS
The Commission and the Presidency have accepted
the case for treating Islamic home purchase plans in the same
way as other equivalent mortgage products. The result is a limited
purpose test which exempts from the scope of the Directive credit
agreements for the acquisition or retention of property rights
in land or in existing or projected building.
CREDIT UNIONS
Following lengthy discussions with Ireland and
Poland (who also have credit unions but have very different policy
objectives) as well as with the Commission, we believe that we
are now on the verge of a satisfactory outcome, although we need
to ensure that this is not opposed by other Member States in the
Council Working Group. The solution would allow UK credit unions
to be exempted from the scope of the Directive on the basis of
a market share test applied both to individual credit unions and
to the UK sector as a whole. At the same time Ireland would be
able to apply the light touch regime envisaged in the original
Commission Proposal and Poland would be able to apply the full
requirements of the Directive. This looks complex and risks arousing
suspicion amongst other Member States that this is simply special
treatment for UK credit unions, but we have warmed up other key
Member States and our proposal did not encounter significant opposition
at the last Working Group meeting.
OVERDRAFTS
We have as yet had little success in persuading
other Member States that there is a problem here despite a degree
of lobbying by the industry at both national and European levels.
Our key concerns are: first, that the application of an APR to
overdrafts will result in an indication of cost which might be
positively misleading for consumers; second, that the requirement
for written information in advance might reduce flexibility and
inconvenience consumers seeking urgent overdraft facilities; and,
third, that the requirements for notifying consumers individually
of interest rate changes would be unduly burdensome. We have had
some success in reducing the burden on lenders to provide information
to consumers about interest rate changes immediately and individually
and the Presidency has accepted our view on the APR, although
we will need to work to convince other Member States that this
is the right outcome.
RIGHT OF
WITHDRAWAL
Although we do not believe that the case has
been made for a right of withdrawal in face-to-face contracts,
other Member States do not share our point of principle. Nevertheless,
a number of Member States, including France and Ireland, share
our concerns about how this provision would work in practice in
the case of linked transactions for credit and goods. We are continuing
to work towards improving the wording of the relevant Article
as well as seeking further information from the industry about
the extent of the problem. We are also considering with legal
advisers how far we might be able to implement this provision
in a way which would meet the spirit of the Directive without
creating problems for traders selling goods on credit.
RESPONSIBLE LENDING
Despite the general level of support for including
a responsible lending principle in the Directive, we have so far
succeeded in moving references to responsible lending from the
substance of the Directive to a Recital and we believe that this
would remove the legal uncertainty which originally caused us
concern and would allow the UK to continue to take appropriate
action against irresponsible lending. We will need to ensure that
there is no reversion to the earlier position as a result of pressure
from other Member States.
INFORMATION REQUIREMENTS
We had problems with advertising (Article 4),
pre-contractual information (Article 5) and contractual information
(Article 9). In our view many of the original Directive's requirements
for information would have been unnecessary, imposing additional
cost and risking information overload for consumers. The information
requirements in all three articles have now considerably improved
and are more in line with UK practice. Nevertheless, a major difficulty
on advertising is that it would not be possible for Member States
to require lenders to show an APR in certain circumstances without
triggering full information requirements. This would undermine
the UK's existing three-tier approach and might cause difficulties
in the case of media advertisements. The key outstanding problems
with pre-contractual and contractual information requirements
are that lenders would be required to provide amortisation tables
(which we believe are of limited use to consumers and can be burdensome)
and that we would no longer be able to require wealth warnings
to be included on standard documentation, In most other respects
the list of pre-contractual/contractual information requirements
has been more closely aligned with UK requirements and a catchall
provision allowing Member States to require other contractual
terms to be shown is helpful.
APR ASSUMPTIONS
We are having some success in arguing that go-to
rates are more applicable than blended rates in respect of the
APR assumptions contained in Article 18.
On balance, given the recent progress, I believe
it would be better to have the discretion to join the Common Position
if political agreement is sought. Our good relations with the
Finnish Presidency enhances the prospects of securing further
improvements in the run-up to and at the Competitiveness Council.
I also think that it would be more advantageous to be part of
the Common Position than outside of it. It would also leave us
better placed to continue to seek improvements during the European
Parliament's second reading of the proposal.
I apologise for pressing you in this way but
negotiations have moved much more rapidly over recent weeks than
was anticipated and given the lack of time between now and the
Competitiveness Council and in the light of the above developments,
I would be very grateful if the Committee would agree to lift
the scrutiny reserve on this proposal.
21 November 2006
Letter from the Chairman to Rt Hon Ian
McCartney MP
At its meeting of 30 November 2006, Sub Committee
G considered your letter of 21 November relating to the Consumer
Credit Directive.
We are grateful for the information that you
have provided on negotiations in Council and we are content that
progess has been made on a number of key aspects of the dossier.
We understand also, from your letter and from our assessment of
the Government's response to our Inquiry Report published earlier
this year, that our concerns about the proposed Directive are
largely shared by the Government.
Since receiving your letter however, we understand,
from one of your officials dealing with this subject, that opposition
among Member States to some aspects of the proposal has increased
in the days running up to the 4-5 December Competitiveness Council.
In consequence, we are told that the Finnish Presidency will not
now seek political agreement on the Directive in its present form.
In the circumstances, we will retain the Directive
under scrutiny. Please would you let us know the outcome of future
discussions about the Directive so that we can consider this issue
further at an appropriate time.
6 December 2006
Letter from Rt Hon Ian McCartney MP to
the Chairman
Thank you for your letter of 6 December.
I note that the Committee will be retaining
the proposed Directive under scrutiny and fully understand your
wish to do so, following the decision of the Finnish presidency
not to seek political agreement on the proposal at the Competitiveness
Council on 4 December. With this in mind, I thought it might be
helpful if I updated you on likely next steps.
Although it seemed highly likely that political
agreement would be sought, in the days leading up to the Council,
it became clear that a number of Member States felt insufficient
progress had been made in resolving outstanding issues. Instead,
a discussion was held at the Council about what should happen
next.
During the discussion the UK, along with a few
smaller Member States, questioned the approach being taken and
called for a fundamental evaluation of what was needed to achieve
a single market in consumer credit. However, most Member States
and the European Commission signalled that they wanted negotiations
on the current proposal to continue and Germany, speaking as incoming
Presidency, promised to take the dossier forward actively on the
basis of the current text.
While we continue to have major doubts about
the overall value of the proposal, the outcome of the Council
suggests that most Member States will be prepared to agree to
it subject to the resolution of a few key concerns. This being
the case, our main priority in the short term should be to protect
the concessions we achieved under the Finnish Presidency (which
were considerable) and seek further improvements to the text in
priority areas for the UK. We had particularly close working relations
with the Finnish Presidency and would aim to forge similarly good
ones with the German Presidency, by working constructively on
the details of the proposal. In particular, they have asked us
to consider what could be done to add value to the proposal. We
shall of course look into this with them.
We will also be maintaining close links with
the European Parliament as negotiations go forward. The Parliament
has recently commissioned its own study of the impact of the draft
Directive which is due in the first part of 2007.
Although it is hard to predict future developments
with any great certainty at this stage, I would expect there to
be a strong likelihood that the proposal would be put for political
agreement at the Competitiveness Council scheduled for 21-22 May
2007 (there is also a Council scheduled for 19 February but it
is unlikely agreement would be sought then). Should this be the
case, we will probably find ourselves with the same decision we
faced recently regarding our position on the proposal.
9 January 2007
Letter from the Chairman to Rt Hon Ian
McCartney MP
Thank you for your letter of 9 January, which
was discussed by EU Sub-Committee G at its meeting on 25 January.
Your progress report about the Commission's
proposals for a Directive on Consumer Credit was most welcome.
Please continue to keep us informed about any future developments
of significance. In particular, please let us know as far as possible
in advance if, as you suggest is likely, a revised text is to
be put forward for political agreement at the 21-22 May Competitiveness
Council meeting.
We continue to retain this document under scrutiny.
26 January 2007
Letter from Rt Hon Ian McCartney MP to
the Chairman
Further to my letter of 9 January, I am writing
to up-date you on recent developments on the Consumer Credit Directive.
Negotiations on the proposal resumed in January
and the Presidency has announced that it is their intention for
an agreement to be reached on this proposal at the Competitiveness
Council on 21-22 May. The Presidency has recently come forward
with some drafting suggestions and a number of working groups
have been held over the past few weeks in an attempt to reach
a compromise that would be broadly acceptable to all Member States.
The changes proposed do not radically alter
the previous draft text produced under the Finnish Presidency.
From a UK perspective, the following areas are of most importance:
PRE-CONTRACTUAL
INFORMATION
The Presidency has proposed that pre-contractual
information is presented to the consumer in the form of a standard
information sheet. The intention is that the information currently
listed in Article 5 would be transferred into the standard information
sheet to ensure that it is presented in a standardised way across
Member States. As with the current list of requirements in Article
5, our priority here is to ensure that the information required
is compatible with the kind of pre-contractual information consumers
receive in the UK. We are broadly content that the list would
be compatible but remain concerned about the lack of any reference
to information about how interest payments are allocated during
an agreement, while doubts continue about whether we would be
able to retain our existing requirements concerning wealth warnings.
OVERDRAFTS
We had made significant headway under the Finnish
Presidency in terms of ensuring that the provisions in the proposal
did not impose inappropriate requirements on overdrafts. The latest
text has undone some of these improvements, in particular by re-inserting
the requirement for an APR for overdrafts which we think will
result in an indication of cost which might be positively misleading
for consumers.
We also continue to argue that the requirement
for written information in advance of an overdraft might reduce
flexibility and inconvenience consumers seeking urgent overdraft
facilities. The Presidency has also now proposed that the standard
information sheet referred to above should apply to overdrafts
but it seems very unlikely that this will be supported by the
majority of Member States.
OVERRUNNING OF
CURRENT ACCOUNTS
We remain concerned about the impact the proposal
could have on overrunning of current accounts.
In particular that singling out requirements
concerning information on unauthorised overdraft charges could
interfere with Member States' ability to maintain consistent homogenous,
legislation on current accounts which we see as something quite
separate to the Consumer Credit Directive.
EARLY REPAYMENT
The Presidency has come up with a new proposal
that while not exactly mirroring our own rules on early settlement,
we think we could support because it would not impose excessive
costs on consumers or interfere with our actuarial system of calculating
amounts due.
NEXT STEPS
Our recent efforts have been focussed on making
sure that the concessions we achieved under the Finnish Presidency
are retained and also seeking to improve the text in other key
areas. In addition to the areas referred to above, these include
the provisions on advertising where it would not be possible for
Member States to require lenders to show an APR in certain circumstances
without triggering full information requirements, as is the case
in the UK. The provisions on right of withdrawal have also been
causing some concern but we have been working with the Presidency
to amend the text to enable us to implement this provision in
a way which would meet the spirit of the Directive without creating
problems for traders selling goods on credit.
As in December, whether or not the UK would
be willing to support the proposal must depend on its final nature
and how much success we have in meeting the key concerns outlined
above. In a fast-moving negotiation, it is of course very difficult
at this stage to predict what our position would be on the day,
if as expected, the Presidency seek to reach a Common Position
in May. However, I thought it would be helpful to bring you as
up-to-date as possible on these developments so that the Committee
could take a view on whether it would be appropriate to lift your
scrutiny reserve in advance of the 21-22 May Council meeting.
If the situation changes I will of course up-date the Committee.
4 April 2007
Letter from the Chairman to Rt Hon Ian
McCartney MP
Thank you for your letter of 4 April providing
the latest information about the progress of negotiations in relation
to the Consumer Credit Directive. This was discussed by Sub-Committee
G at their meeting held on 26 April.
We are pleased to hear that the considerable
improvements achieved in the draft text under the Finnish Presidency
have largely been consolidated. We also note that the document
is likely to come up for political agreement at the 21-22 May
Competitiveness Council.
We recognise that there remain a number of points—as
described in your letter—on which the Government wishes
to make further progress in negotiation before agreeing the proposal;
and we support your efforts to do this in the coming few weeks
before the Council meeting.
Against this background, we are now content
to clear this document from scrutiny.
Please be aware also that, at its meeting held
on 24 April, the EU Select Committee agreed to withdraw the recommendation
for debate of our Consumer Credit Inquiry Report which was made
at the time of the Report's publication in July 2006.
Please would you let us know the outcome of
the 21-22 May Council meeting in relation to the Directive.
27 April 2007
124 Government Responses, 37th Report of Session 2006-07,
HL Paper 182, p 131. Back
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