New EU rules for consumer loans

New European rules on consumer loans encompass numerous provisions that further protect citizens, such as the prohibition of unilateral increases in allowed limits and tacit overdrafts, it was highlighted in a discussion held on Monday, which was attended by MEP Tomislav Sokol (HDZ/EPP) and the Vice Governor of the Croatian National Bank Bojan Fras.

Representative Sokol, who was the rapporteur for the Consumer Credit Directive on behalf of the EPP Group, emphasized that a study – which was prepared at his suggestion by the research service of the European Parliament – revealed that as many as 340 million people in EU member states have overdrafts on their bank accounts.

– Overdrafts are one of the most expensive forms of borrowing. Consumers in this category are therefore the least protected. For example, in Malta, interest rates go above 30 percent – said the representative in a discussion organized by the Office of the European Parliament in Croatia, explaining that it was therefore important to incorporate rules into the text of the new directive that would require banks to seek explicit consent from consumers for any increase in overdrafts on their accounts.

Sokol reminded that a study conducted by the HNB showed that tacit overdrafts on current accounts were granted to almost one million eight hundred thousand consumers in the Republic of Croatia, “and the problem was that the same rules did not apply to tacit overdrafts as to allowed overdrafts.”

– In other words, banks could arbitrarily cancel such overdrafts and demand repayment of debts without providing the opportunity to repay the tacit overdraft, and the European Commission’s proposal on this directive was also in that direction. That is why I submitted amendments that strengthen the position of consumers, and I am glad that they became part of the final law on consumer loans. Thus, banks will have to inform citizens in advance about any planned reduction or cancellation of tacit overdrafts and leave them the option of installment repayment in twelve equal installments – he explained.

The right to be forgotten and protection against discrimination

The HDZ MEP also noted that the new directive is the first legislative act that codifies the right to be forgotten and protection against discrimination for citizens who have recovered from cancer.

– It is prohibited to treat persons who have recovered from cancer less favorably. I have always said that the right to be forgotten must become part of European legislation and that Europe must remove the barriers faced by people who have recovered from cancer when accessing financial instruments such as loans, mortgages, and life insurance – he said.

The new rules also prohibit banks from sending unsolicited credit cards to consumers’ home addresses and unilaterally increasing consumers’ borrowing limits.

– Without explicit consent from consumers, banks will no longer be able to increase their borrowing limits or overdrafts on accounts. In addition, we have banned advertising loans that present borrowing lightly, as if consumers’ financial quality of life would significantly change. The credit relationship is a serious contractual relationship and must not be trivialized as it can have far-reaching and negative consequences for consumers, for example, in the case of non-fulfillment of obligations. Therefore, advertisements for loans must contain a clear indication that loans cost – said Sokol.

Vice Governor of the HNB Fras welcomed the new rules at the panel and emphasized that consumer protection always goes hand in hand with financial stability.

New rules by 2026 at the latest

The directive, which was confirmed by the European Parliament with a large majority of 608 votes at last month’s plenary session in Strasbourg, member states will have to apply by 2026 at the latest. It adapts consumer loans to the ubiquitous trend of digitalization while strengthening the position of consumers in relation to banks.

At the EU level, rules on consumer loans were last regulated in 2008. In the meantime, thanks to digitalization, the decision-making processes and consumer habits have fundamentally changed, as consumers now want an easier and faster process for obtaining loans and often submit loan applications online. New participants and new products, such as short-term loans with high costs, have emerged in the market. Digitalization has also led to the emergence of new ways of digitally publishing information and assessing consumers’ creditworthiness using automated decision-making systems and non-traditional data. For all these reasons, it was necessary to adapt EU rules on consumer loans to new circumstances, announced the Office of the European Parliament in Croatia.