Fabian Demicoli

Directive on Consumer Credit Agreements for consumers-Transposition of Directive

Abigail

Government is preparing to transpose this Directive into Maltese law. Consumer Credit is regulated under Maltese law by means of Legal Notice 84 of 2005 as further amended. This Legal Notice implements Council Directive 87/102/EEC on consumer credit. This Directive was subsequently replaced by Directive 2008/48EC on credit agreements for consumers.

 

The Directive applies to the most commonly concluded agreements. However there are several types of credit agreements which are exempt from the scope of application, such as:

mortgages; agreements for the acquisition of real property; agreements for an amount of less than €200; agreements for an amount exceeding €75,000; most of the leasing agreements; agreements in the form of an overdraft facility and credit that has to be repaid within one month; credit granted by employers to their employees; and interest free credit

In the interest of strengthening consumer awareness, the Directive diffentiates between pre-contractual and contractual information:

Pre-contractual information must be provided in the form of a Standard European Consumer Credit Information Form which establishes the minimum new information which must be made available to the consumer. A number of new concepts have been introduced in this respect:

the right of the consumer to be provided with a copy of the draft credit agreement free of charge;

the provision of information through voice telephony communication and other distance communication which reflect the current market needs; and

the provision of information on specific credit agreement such as overdrafts.

This information is meant to eliminate the current practice of provision of general information in "fine print".

The provision of contractual information will also be specified with more clarity by the establishment of a standard of minimum information, including the obligation to regularly inform the client of any changes to interest rates. Other specific information obligations are also being established for the creditors in connection with the possibility of an overdraft.

Other changes introduced by Directive 2008/48EC include:

The principle of reasonable lending practices. Under this principle, the creditor will be obliged to assess the credit worthiness of the consumer, where possible through the use of a special database. This should in principle limit the over extension of consumer debit.

The right of the consumer to withdraw from the credit agreement within 14 days of its conclusion.

The regulation of the early repayment of credit including the resolution of compensation of the creditor for costs directly related to early repayment.

The regulation of linked credit agreements where a consumer who withdraws from a credit agreement shall no longer be bound by a linked agreement.

The assignment of creditors' rights so that the consumers may not find themselves in less advantageous conditions.

The introduction of a definite mathematical formula for the calculation of the Annual Percentage Rate of Charge (APR). The formula and its elements are defined in detail so that the APR may serve the consumers as a tool for comparison.

The right to information provided in connection with consumer advertising. Consumers have been granted the right to obtain standard information alleged in advertising or other relevant information with regard to the costs of the credit facility in a clear, concise and transparent way. The aim is to achieve full consumer awareness about all the fees included in the total cost of the credit facility, and to combat against "hidden costs".

The setting up by each Member State of a supervisory authority, exercising supervision on creditors and also implementing obligations on intermediaries in the granting of credit facilities.

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