Changes to the consumer credit act: a more rigorous framework

The Belgian ”Consumer Credit Act” was recently amended (1) in order to implement the Consumer Credit Directive (2) into Belgian law. These amendments will enter into force on 1 December 2010. The aim of the amended Consumer Credit Act is to protect consumers against excessive debt, thus entailing more extensive obligations for lenders than currently foreseen.

1. Scope of the amended Consumer Credit Act

The amended Consumer Credit Act will apply to any credit agreement entered into by a consumer residing in Belgium, provided that the lender (i) develops commercial or professional activities in Belgium, or (ii) by any means, aims its activities exclusively at Belgium or at various countries including Belgium and that, in either case, such credit agreement falls within the scope of those activities.

In addition, various changes have been made to the categories of credit agreements that fall outside the scope of the Consumer Credit Act. Currently, credit agreements concluded in the form of notarial deed of which the principal amount is higher than EUR 20,000 fall outside the scope of the act. This threshold has now been increased to EUR 75,000.

2. Main provisions

The main provisions relate to (i) information duties for the lenders; (ii) restrictions on advertisements for credit agreements; and (iii) the withdrawal right of the consumer.

(i) Information duties

The amended Consumer Credit Act outlines in detail the information which must be provided in a standard format to consumers prior to entering into a credit agreement. This document should contain all essential information (such as the type of credit, total credit amount, conditions for drawdown, etc) in relation to the credit agreement, in order to allow consumers to study and compare the different credit offers. This provision is much more detailed than the current general duty to inform imposed on lenders and aims at providing the consumer with all the necessary information in relation to the envisaged credit agreement.

The amended Consumer Credit Act also contains a detailed list of information which needs to be incorporated in the credit agreement, and further provides a number of continuous information obligations applicable to lenders (e.g. the consumer needs to be informed of any changes to the interest rate before they enter into force).

(ii) Advertisement

All advertisements for consumer credit agreements will have to include the wording “Watch out: borrowing money costs money”. At the same time, the amended Consumer Credit Act states that any advertisement for a credit agreement which mentions an interest rate or any figures in relation to the costs, should not only mention the annual percentage rate of the costs (as is currently foreseen in the Consumer Credit Act), but also the interest rate, the total credit amount, the total costs and the maturity of the credit agreement.

(iii) Withdrawal right

The amended Consumer Credit Act extends the right of the consumer to withdraw from the credit agreement from 7 to 14 days as of (a) the date of conclusion of the credit agreement or; (b) the date on which the consumer receives the contractual terms and conditions.

Other provisions of the amended Consumer Credit Act relate to early repayment, termination of open-end credit agreements, the option to adjust the credit agreement to the advantage of the borrower, the prohibition of handing over borrowed sums in cash, etc.

3. Conclusion

The extension of the scope of application of the Consumer Credit Act implies that lenders will have to comply with the amended provisions for the vast majority of the credit agreements. To the extent that the amended Consumer Credit Act applies, lenders may consider (i) adjusting their standard credit agreements to the new information provisions; and (ii) reviewing all advertisement material in relation to such credit agreements.