The Consumer Credit Directive (Directive 2008/48/EC, “CCD1”)1 was published in 2008 to set out the legal framework for the consumer credit market in the EU. Since then, digitalization and other technological developments have significantly changed the consumer credit market, both in terms of consumer behaviors and new credit products. For example, today consumers can obtain credit with just a few clicks on their computer or mobile phone. In addition, Fintechs offer services – such as “buy now pay later” – that were not addressed by CCD1.
To address these developments and improve consumer protection in the credit market, the EU has decided to replace CCD1 by the new Directive (EU) 2023/2225 of the European Parliament and of the Council (the Second Consumer Credit Directive,”CCD2”), which was officially published on October 30, 2023.2 CCD2 introduces new harmonized rules with an extended scope of application and a number of changes that will have a significant impact on the consumer credit market.
Below we have summarized the key differences between CCD2 and CCD1:
Extended scope – de minimis thresholds
CCD2 provides for a broader scope of application to ensure a high level of consumer protection and to facilitate a common market for consumer credit within the European Union.
While CCD1 did not apply to credit arrangements of more than €75 thousand, CCD2 raises that maximum threshold to €100 thousand.
In addition, while CCD1 did not apply to credit agreements:
- With a value of less than €200, or
- That had to be repaid within one month, or
- That had to be repaid within three months and were subject to insignificant charges,
CCD2 no longer exempts these types of credit. Instead, member states have the option not to apply certain requirements of CCD2 to such credits.
Extended scope – financial leasing
While CCD1 only applied to leasing agreements that contained an obligation for the consumer to purchase the leased goods at the end of the leasing term (or where the creditor could unilaterally determine whether or not the consumer had to purchase the leased goods), CCD2 also applies to leasing agreements that include a purchase option that can be exercised at the consumer’s discretion.
Extended scope – buy now pay later
Recital 15 CCD2 explicitly states that CCD2 applies to “buy now pay later” services, even if they are offered free of interest or charges, and even if the consumer has to repay the credit within three months. “Buy now pay later” means that a third party grants credit to a consumer for the exclusive purpose of purchasing goods or services from a supplier, and the consumer must pay them off over time. However, if the seller itself offers payment in installments or similar forms of credit, CCD2 will not apply.
Extended scope – crowdfunding
While CCD1 already contained requirements that applied to credit intermediaries, Recitals 22 and 93 of CCD2 explicitly clarify that such requirements also apply to the operators of crowdfunding platforms. In doing so, CCD2 closes the “regulatory gap” that exists due to the fact that crowdfunding platforms for consumer credit are exempt from Regulation (EU) 2020/1503 on European crowdfunding service providers.
Pre-contractual information
Similar to CCD1, Art. 10(2) and (3) CCD2 require creditors to provide key information about the credit (such as the borrowing rate and costs, annual interest rate, the total amount of the credit and the duration of the credit agreement) in a prominent way on the first page of the Standard European Consumer Credit Information, a standardized information sheet prescribed in Annex I of CCD2. In addition, Recital 37 of CCD2 requires that such information be adapted to the technical constraints of certain media such as mobile telephone screens.
If pre-contractual information is provided less than one day before the conclusion of the consumer credit agreement, the creditor or credit intermediary must send a reminder to the consumer regarding the statutory withdrawal right. The reminder must be sent between one and seven days after the conclusion of the agreement (Art. 10(1) CCD2). The reminder must be in writing or on another durable medium (including e-mail) specified in the credit agreement.
Additional creditworthiness assessment rules
CCD2 expands the existing CCD1 rules on the assessment of the consumer’s creditworthiness. Art. 18(3) and Recital 55 CCD2 list the information that the creditor may take into account for such an assessment. Such information includes income or other sources of repayment, information on financial assets and liabilities, or information on other financial commitments. However, the list is not conclusive, and creditors do not have to consider all of these elements if they are not necessary or proportionate for a specific credit agreement.
Art. 18(3) clarifies that such information must not include the personal data mentioned in Art. 9(1) of Regulation (EU) 2016/679 (GDPR), such as health data.
In view of the increasing concerns about the use of artificial intelligence, consumers have the right to obtain human intervention by the creditor when the creditworthiness assessment involves automated processing (Art.18(8) CCD2). Consumers also have the right to obtain a meaningful and comprehensible explanation of the assessment and how the automated processing works.
Advertising of consumer credit
Art. 7 and Art. 8 CCD2 stipulate that any advertising and marketing communications relating to credit agreements must be fair, clear and not misleading, especially regarding the cost of credit or the total amount payable. In addition, advertisements concerning credit agreements must contain a clear and prominent warning to make consumers aware that borrowing costs money, using the wording: “Caution! Borrowing money costs money” or equivalent wording (Art. 8 CCD2).
Similarly to CCD1, CCD2 stipulates that advertising concerning credit agreements, which indicates an interest rate or figures related to the cost of credit to the consumer, must include the specific standard information set out in Art. 8(3) CCD2.
CCD2 also prohibits certain credit practices which may induce consumers to enter into credit agreements that are not in their best interests. Creditors and credit intermediaries are prohibited from using default options such as pre-ticked boxes, which infer the consumer’s agreement to enter into any credit agreement or purchase ancillary services (Art.15(1) CCD2). In addition, granting credit to consumers without their prior request and explicit agreement is also prohibited under Art. 17 CCD2.
Tying and bundling practices
CCD2 introduces a prohibition of “tying practices” (Art. 14(1) CCD2), subject to certain exemptions. In contrast to tying practices, bundling practices will continue to be permissible. “Tying” means that a credit agreement is offered in a package with other products or services, and not made available to the consumer separately. “Bundling” means that a credit agreement is offered in a package with other products or services, but the credit agreement is also made available to the consumer separately.
Measures limiting high interest rates
Contrary to the EU Commission’s initial proposal3, CCD2 does not provide for mandatory hard caps on interest rates, annual percentage rates or charges, or total costs of credit. Instead, Art. 31(1) CCD2 requires Member States to take measures to effectively prevent abuse and to ensure that consumers cannot be charged with high rates or total costs of credit (which could include introducing caps into national legislation).
Debt advisory services
CCD2 introduces requirements for creditors on debt advisory services. Pursuant to Art. 36(1) CCD2, creditors have to refer consumers who experience difficulties in meeting their financial obligations to debt advisory services provided by professional operators. The operators of these services must be independent, and may not be creditors or credit intermediaries (point 22 of Art. 3 CCD2).
Rules of conduct
CCD2 introduces general rules of conduct that are similar to the rules of conduct in securities regulation and other financial regulations. Member states shall require the creditor and the credit intermediary to act honestly, fairly, transparently and professionally taking into account the rights and interests of the consumer.
Potential conflicts resulting from remuneration policies for staff involved in credit assessments must be managed/controlled (Art. 32 CCD2). This could mean, for example, that the remuneration of such employees must not depend on the number of credit applications they have approved. Staff must also have an appropriate level of knowledge and competence and keep these up to date (Art. 33 CCD2).
Next steps
As a directive, the EU member states have to transpose CCD2 into their domestic law by November 20, 2025, with the new measures taking effect from November 20, 2026 onwards. For credit agreements concluded on or before November 20, 2026, CCD1 will continue to apply until their termination.
