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Welcome to the first issue of the Consumer Credit Directive bulletin. This bulletin is intended to update all stakeholders about the progress in the implementation of the Directive. It will also give updates on important upcoming events, milestones or issues related to the implementation process.
Tord Johnsen
Project Manager for the CCD implementation
The CCD was adopted by the European Commission in May 2008, and must be implemented into UK credit legislation by June 2010. BERR will focus on finalising the implementing legislation by November 2009, to allow additional preparation time for the lending industry before the regulations come into force the following year. This gives a very tight overall timetable.
The BERR approach is to formally consult only once, with draft regulations. This consultation will go out in early April 2009, with BERR expecting to issue a response to the consultation by early September the same year. The regulations will then be presented to ministers for approval in October. BERR received ministerial approval for the proposed approach to the implementation in September.
Since early summer 2008, BERR has engaged with the lending and credit industry and customer interest groups in informal expert workshops, based on topics that will require amendments in existing UK credit legislation as part of the CCD transposition. These groups are expected to continue until late October 2008, when BERR will consider policy recommendations for the draft regulations.
The intention for the implementation of the CCD has been to make an efficient and rapid transposition. This is to ensure that the lending industry gets more than the required 12 weeks to make necessary systems changes to be ready for the new law, and we are currently looking at a period of 6-8 months for such preparations. BERR is aware of the lending industry’s concern that this period is insufficient for making the necessary adaptations that may be required.
The deadlines for implementing Directives, such as the CCD, are unfortunately non-negotiable, and there is no opportunity to postpone the implementation. As the CCD is a maximum harmonisation directive, it requires more detailed and time consuming attention from a legal point of view as it inevitably has a greater impact on existing UK legislation. It therefore has to be factored in a longer period of time for drafting regulations. This extended time is unavoidable and part of the reason why there is only to be one consultation for this directive.
BERR has throughout the summer encouraged the lending industry to contribute to the expert working groups with two overarching aims: Firstly, BERR wants to engage with the experts in industry to help flag legislative issues that will arise from implementing the CCD. This exercise will in turn benefit the operators in industry by giving them early indications as to what BERR will take forward as recommendations for the regulations. Secondly, BERR needs information relating to the costs of the transposition from the operators in the industry. This is a multi-faceted impact assessment exercise, where the Government is trying to measure both the monetary cost of legislation as well as the administrative cost. This all feeds into an impact assessment supplement to the regulations that must demonstrate both types of costs.
The industry contribution to this exercise is invaluable, as it will inform at the earliest possible moment which options to recommend for new credit legislation. So far there has been a distinct lack of such contributions, and the progress of the implementation is in danger of slowing down because of it. Any delay will unfortunately eat into the additional time made available to the lending industry in which they will have legal certainty.
Moving forward, BERR will look to draw conclusions from the expert working groups in order to inform recommendations for the draft regulations by the beginning of November 2008. This doesn’t mean we would want to end the engagement that has started with these groups. BERR recognises the importance of keeping a dialogue going between the policy makers and the stakeholders leading up to the consultation, but there has to be a cut-off point for practical purposes.
BERR will therefore work according to the following deadlines for written responses to discussion papers to make part of the policy recommendations:
Other key dates for the next six months are as follows:
Scope - This is to complement the work on scope being undertaken within individual working groups, as, in our view, the issue can only be dealt with effectively on a thematic basis. Our starting point is that it makes sense to apply the same provisions to all credit agreements regulated under the Consumer Credit Act, but to consider disapplying these provisions or modify them where evidence suggests that they would be inappropriate in specific cases.
Advertising (Article 4) - A key issue concerns how to interpret the representative example provision and its relationship with the APR assumptions. A second issue concerns the meaning of Recital 18 which we assume to mean that Member States can make rules about aspects of advertisements that do not relate to the cost of credit.
Information requirements (Articles 5, 6 and 10) - Key issues have been the language in the standard pre-contractual information sheet and how the "amount of credit" should be shown at the pre-contractual stage when it is not known, or at all in the case of credit card agreements where the amount of credit does not form part of the agreement.
Adequate explanations (Article 5.6) - The favoured approach would be to agree a standardised pro forma setting out clearly a number of key features with a reference to the pre-contractual information and providing a contact point for further information.
Overdrafts and overrunning - Perhaps not surprisingly, there have been issues about terminology. There may also be an issue about the way in which the total cost of credit is to be shown.
Right of withdrawal (Article 14) - A key issue will be how far we should extend the provisions on the right of withdrawal to credit agreements not covered by the Directive and whether the right of withdrawal could have an adverse impact in the case of linked credit agreements signed at the point of sale.
Early repayment (Article 16) - The key question is how far existing UK provisions on early settlement meet the requirements of the Directive, whether or not the existing early repayment formula remains valid and how it might need to be adjusted to cope with partial early repayment. Another important issue is whether or not we envisage consumers informing lenders of their intention to repay early.
Calculation of the APR (Article 19 and Annex I) - The main concerns here are that the assumptions in the CCD are considerably less sophisticated and at a considerably higher level than those we already have in the UK.
Linked agreements/Joint and Several Liability (Article 15) - We are currently exploring the extent of the Member State derogation here and whether the fact that the UK regime appears to afford consumers more protection than the CCD requires any change in the UK.
Creditworthiness checks and database access (Articles 8 and 9) - A key issue is likely to be the extent to which terms in the article on credit worthiness need to be defined and how to deal with the situation in which it is not clear whether a decision to reject a consumer's application for credit was in fact based on information from a credit reference agency rather than other information.
Post contractual information (Article 11) - Our initial thinking suggests that the Directive's provisions would require some amendment of the 1977 Consumer Credit (Notice of Variation of Agreements) Regulations.
Termination of open-end agreements (Article 13) - The Directive will probably require some changes, including the introduction of a minimum two months notice period for lenders and a requirement that the consumer cannot be required to give more than one month's notice
Assignment of rights (Article 17) - Our preliminary view is that they should not raise any issues in that it reflects existing UK practice, but we will be undertaking further work on this.
Regulation of creditors (Article 20) - Initial indications suggest that we are unlikely to have issues here, so not clear that we will need a working group at this stage.
Obligations of Credit intermediaries (Article 21) - The key issue may be around the requirement for a credit intermediary to communicate any fee he charges to the principal lender for the purpose of calculating the APR and how that would work.
Overlap with Payment Services Directive - BERR are proposing to set up a meeting with CCD stakeholders and Treasury to identify issues of particular concern.
