EU Boosts Consumer Protection in Finance with New Directives
The European Union, in a landmark move, has introduced the New Consumer Credit Directive (CCD II) under Directive (EU) 2023/2225, aimed at bolstering consumer protection in the financial sector.
This comes in the backdrop of the burgeoning digital credit services, necessitating a secure and transparent consumer credit landscape.
Unveiling the New Consumer Credit Directive
Replacing the previous Directive 2008/48/EC, the CCD II broadens its protective umbrella to cover credit agreements up to EUR 100,000, including those below EUR 200. It further accommodates novel credit formats such as the ‘buy now pay later’ schemes.
With an increased focus on transparency, the directive institutes stringent advertising regulations, mandates borrowing cost warnings, and enhances pre-contractual information requirements.
Notably, it empowers consumers with the right to withdraw, makes creditworthiness evaluations obligatory, prohibits certain practices like tying, and sets caps on fees. The directive is set to be transposed into national law by 20 November 2025 and will be effective from 20 November 2026. Until then, the existing directive will continue to govern credit agreements.
Revoking Directive 2002/65/EC and Expanding Consumer Rights Directive
In another significant step, the Amending Directive (EU) 2023/2673 has annulled Directive 2002/65/EC on the distance marketing of consumer financial services. Instead, it expands the Consumer Rights Directive (2011/83/EU) to include distance contracts for consumer financial services.
This translates into the application of general provisions against forceful sales and undisclosed additional payments to these contracts.
Additionally, it transfers the obligations for professionals and consumers’ withdrawal rights to a new chapter in the Consumer Rights Directive. It also introduces specific provisions for distance contracts such as the right to request human intervention on automated online platforms and protection against misleading online interfaces. The transposition of this directive is slated for 19 December 2025 and will become enforceable from 19 June 2026.
European Court of Justice on Vehicle Financing and Leasing
Meanwhile, the European Court of Justice has passed a ruling on withdrawal rights in the context of vehicle financing and leasing.
In response to three cases in Germany involving various captive banks, the court ruled that leasing agreements with mileage allowance, even if considered distance or off-premises contracts, could fall under the exception from the right of withdrawal relating to car rental services.
This applies to leasing agreements with a duration of 24 months. The ruling further clarified the right of withdrawal for distance contract-based and financing agreements.
