Changes to the Consumer Credit Act
This newsletter focuses on the main consequences of implementation of the Directive in Belgium.
The Consumer Credit Directive (2008/48/EC) (the "Directive") has been implemented in Belgian law by the Act of 13 June 2010 (the "Act") amending the Consumer Credit Act of 12 June 1991. The Act was published in the Belgian State Gazette on 21 June 2010 and, with one very limited exception, will enter into force on 1 December 2010.
The purpose of the Directive is to harmonise the laws and regulations on consumer credit in the
EU Member States in order to facilitate the emergence of a well-functioning internal market in consumer credit. Full harmonisation was deemed necessary in order to ensure that all consumers in the European Union enjoy a high and equivalent level of protection when entering into credit agreements.
The Directive is based on the notion of maximum harmonisation. However, the Member States are given a certain degree of leeway in relation to a number of topics. The Directive replaces Council Directive 87/102/EEC of 22 December 1986 for the approximation of the laws, regulations and administrative provisions of the Member States concerning consumer credit.
The Directive contains rules governing the relationship between offerors of credit agreements and
consumers, including rules on advertising, the provision of information, the assessment of creditworthiness, and the content of credit agreements. The Directive also contains rules on credit intermediaries.
This newsletter focuses on the main consequences of implementation of the Directive in Belgium.
Changes to the scope of the Consumer Credit Act
General remarks
The Act slightly modifies the scope of the Consumer Credit Act.
As from 1 December 2010, the Consumer Credit Act will apply to any credit agreement concluded
with a consumer whose habitual residence is in Belgium provided the lender (credit offeror) (i) carries on professional activities in Belgium or (ii) by any means directs its activities solely at Belgium or at several countries including Belgium and, in either case, the credit agreement falls within the scope of the lender's activities.
In addition, various changes have been made to the categories of credit agreements that fall outside the scope of the Consumer Credit Act, most notably short-term credit agreements. Currently, credits with a term of three months or less fall outside the scope of the Consumer Credit Act. After 1 December 2010, however, short-term credits will only fall outside the scope of the Act if they are interest free, have a term of two months or less, and the incidental charges on the credit do not exceed EUR 50 per year.
Light-touch regulation for certain types of credit
The light-touch regulation for credits of less than EUR 200 or more than EUR 75,000 will remain in place, with the notable exception that the latter threshold has been raised from EUR 20,000.
Upon the entry into force of the Act, light-touch regulation will also apply, under certain circumstances, to overdraft facilities, where the credit must be repaid within one or three months, and to credit agreements concluded with an investment firm or credit institution for the purpose of allowing the investor to carry out a transaction in financial instruments.
Credit offerors' obligations
Advertising
Article 5 of the Consumer Credit Act already lays down various requirements concerning the advertising of credit products.
Article 5 will be totally revised upon the entry into force of the Act to provide that any advertisement for a credit agreement which mentions an interest rate or any figures relating to the cost of the credit to the consumer must include certain standard information in a clear, concise and prominent way by means of a representative example. The standard information required includes the borrowing rate, the total cost, the total amount of credit, and the annual percentage rate.
All other advertisements for consumer credit products must include the following mention (in French or Dutch): "Watch out: borrowing money costs money."
Most provisions of Article 6 of the Consumer Credit Act, which prohibits certain types of advertising, will remain unchanged.
Mandatory provision of pre-contractual information
Article 11 of the Consumer Credit Act, which imposes on both lenders and credit intermediaries a
general duty to inform and counsel consumers, will be replaced by detailed rules intended to ensure that consumers are fully informed prior to entering into a credit agreement. The new article will list the information that must be provided in a standard format to consumers in good time in order to allow them to compare different offers and take an informed decision on the credit agreement.
This information shall include the type of credit, the creditor's identity and address, the total amount of the credit and the conditions for drawdown, the term of the credit agreement, the borrowing rate, the annual percentage rate, the total amount payable by the consumer, the interest rate for late payment, a warning on the consequences of default, etc.
The credit agreement
Whereas presently a credit agreement must be entered into by means of a written document signed by all parties, the Act provides that a credit agreement need only be on paper or another durable medium and that signature by electronics means is allowed.
The Act also contains a longer, more detailed list of the information which must be included in a credit agreement.
Right of withdrawal
The Consumer Credit Act provides that the consumer has the right to withdraw from the credit agreement within 7 days from the day after the date of conclusion of the agreement. The Act extends this period to 14 days from the date of conclusion of the credit agreement or from the date on which the consumer receives the contractual terms and conditions and any other information to which he/she is entitled. If the consumer exercises this right, he/she must repay the capital and accrued interest to the lender within 30 days.
Early repayment
The rules applicable to early repayment will be amended to provide that the consumer is entitled to a reduction in the total cost of the credit while the lender is entitled to fair and objectively justified compensation for possible costs directly linked to the early repayment, provided the early repayment occurs within a period for which the borrowing rate is fixed.
Such compensation may not exceed 1% of the amount repaid early, if the period of time between the repayment date and the agreed termination date of the credit agreement is more than one year. If this period does not exceed one year, the compensation may not exceed 0.5% of the amount repaid early.
In any case, any such compensation may not exceed the amount of interest the consumer would have paid during the period between the early repayment date and the agreed termination date of the credit agreement.
Linked credit agreements
A linked credit agreement is an agreement which serves exclusively to finance an agreement for the supply of goods or the provision of a specific service and which objectively forms a commercial unit with the latter agreement. Under the new rules, a consumer who has exercised his/her right to withdraw from a contract for the supply of goods or the provision of services is no longer bound by a credit agreement linked thereto. There are also new rules on the consequences for linked credit agreements when the goods or services are not supplied or when defective goods or services are provided.
Termination of open-end credit agreements
The Act will insert a new article (Article 33ter) in the Consumer Credit Act to implement Article 13 of the Directive on open-end credit agreements. This article will provide that consumers may terminate at any time and free of charge a credit agreement that has yet to reach maturity. If a notice period is agreed, it may not exceed one month. The creditor may terminate the agreement prior to maturity by giving two months' notice, if a provision to this effect is included in the agreement itself.
Repeal of specific rules applicable to certain types of credit agreements
The Consumer Credit Act contains specific rules applicable to agreements for instalment sales (vente à tempérament/verkoop op afbetaling), leasing (crédit bail/financieringshuur), instalment credits (prêt à tempérament/lening op afbetaling), and credit lines (ouverture de crédit/kredietopening). The Act will repeal some of these rules.
Continuous information obligations
The Act also provides for a number of new continuous information obligations applicable to creditors.
For example, after the entry into force of the Act, Article 30 of the Consumer Credit Act will provide that, where applicable, the consumer must be informed on paper or another durable medium of any changes to the borrowing rate before these changes enter into force.
When the credit agreement provides for the opening of a credit line (including an overdraft facility), the consumer must be provided with regular statements of account, on paper or another durable medium, containing the following information: the period to which the statement relates, the amounts drawn down and the drawdown dates, the dates and amounts of payments made by the consumer, the applicable borrowing rates, the charges, etc.
Furthermore, in the event of an overdraft of more than EUR 1,250 for a period of more than one month, the creditor must inform the consumer without delay, on paper or another durable medium, of the existence of the overdraft, the amount involved, the borrowing rate, and any penalties or charges.
Rules on supervision
With one exception, the Act leaves unchanged the provisions of the Consumer Credit Act on the licensing and registration requirements applicable to creditors and consumer credit intermediaries. This area currently falls under the responsibility of the Minister of Economic Affairs. The only change made by the Act to the existing legislation is to provide that the Minister of Economic Affairs or the latter's representative may cancel any licence or registration granted to a creditor or credit intermediary if it does not start activities within 12 months from the date of the licence or registration.
According to the legislative history, the provisions on licensing and registration will be amended by a separate act in order to provide, amongst other things, that the Banking, Finance and Insurance Commission (Commission bancaire, financière et des assurances/Commissie voor het bank-, financie- en assurantiewezen or "CBFA") shall replace the Federal Public Service of Economic Affairs as the competent supervisory authority. However, to date, no bill or proposal has been presented on this subject and it is thus not clear whether this change will be made.
Entry into force
As indicated above, all but one provision of the Act will enter into force on 1 December 2010, six months after the date of its publication in the Belgian State Gazette. Article 19(1) on the repayment of open-end or long-term credit agreements will enter into force on 1 January 2013.
Transitional provisions
The Act contains a number of transitional provisions, including the following.
The amended provisions of the Consumer Credit Act will apply to credit agreements concluded before the entry into force of the Act, except for those provisions dealing with advertising, pre-contractual information, the conclusion of credit agreements, termination rights, and the repeal of specific rules applicable to certain types of credit agreements.
Any licence or registration obtained before the entry into force of the Act will remain in force until its renewal date, pursuant to current Article 79 of the Consumer Credit Act.
Specific transitional rules also apply to the registration of certain types of credit agreements with the Central Individual Credit Register.
Recommended measures
In light of the impending changes to the Consumer Credit Act, we recommend taking the following measures:
* Assess whether all credit products offered fall within the scope of the new rules or whether an exception applies.
* Prepare standard forms for the mandatory provision of pre-contractual information if a credit agreement falls within the scope of the new rules.
* Review and modify the documentation for credit agreements that fall under the new rules.
* Review and, where necessary, modify all information provided voluntarily in respect of such agreements (ie., advertisements, brochures, etc.).
This newsletter summarises certain recent changes to the Consumer Credit Act. It is not intended to constitute legal advice and does not purport to provide a complete overview of the subject matter to which it relates.
