Brussels - The European Commission onWednesday proposed caps on interest rates for consumer creditagreements and a ban on bundling practices as part of tougherconsumer credit rules following the surge in online shoppingduring COVID-19 lockdowns and the rise of digital lenders. Existing rules known as the General Product Safety Directivecame into force in 2001 while rules on consumer credit tosafeguard consumers date from 2008.
The EU executive said 70% of consumers shopped online lastyear, with new technology products making up the bulk of theirpurchases. "We are making it easier for consumers to avoid risksrelated to having a credit and we are putting even strongerrules for product safety in place," Commission Vice PresidentVera Jourova said in a statement. "It will also put more responsibility on market players andmake it more difficult for bad actors to hide behind complicatedlegal jargon," she said.
The proposal also includes caps on the total cost of creditand the annual percentage rate of charge, rules on tacitlyaccepted overdrafts and an obligation by the creditor or theprovider of crowdfunding credit services to assess thecreditworthiness of the consumer. The Commission wants information related to credits to bepresented in a clear way in the Consumer Credit Directive andadapted to digital devices to ensure that consumers understandwhat they are signing up for. EU countries will be asked to promote financial educationand to ensure debt advice is made available. The proposals willneed to be thrashed out with EU countries and the EuropeanParliament before they can come into force. Some EU lawmakers however demanded more in order to tackleover-indebtedness and high interest rates. "It is important to us that the range of loans covered bythe directive is expanded. We want to limit fees and interestrates, strengthen consumers' information rights and prohibitmanipulative advertising of credit offers," Green lawmakerRasmus Andresen said. Another Green lawmaker, Sven Giegold, lambasted theshortcomings in the proposal, saying it fails to recognise thatpeople in financial or personal emergency situations are oftennot free to make their own decisions. "Many business models deliberately exploit the distress ofthese people and create dependencies, especially throughover-indebtedness. Providers should be subject to responsiblelending requirements," he said. Consumer group BEUC however welcomed the proposals, sayingthe Commission had accepted many of its suggestions