Updated legislation will cover online loans previously excluded from the scope of the consumer credit directive
New forms of credit are being proposed to vulnerable consumers online, often without adequate risk assessment. Source: shutterstock.com
European regulators have updated the consumer credit laws to protect EU citizens from new forms of online debt, including BNPL schemes and short-term high-cost loans. The revised legislation replaces the current 2008 directive on consumer credit agreements.
From now on, European credit providers should ensure an improved assessment of the consumers’ ability to repay. In addition, credit information must be presented in a clear and understandable way, fully adapted to digital devices. The lenders should disclose the total cost of the credit, as well as place certain caps on the interest rates.
Some loan categories that previously weren’t included in consumer protection practices now also require the assessment of creditworthiness. Those include BNPL loans, loans below €200, and crowd-lending practices. The legislation will cover credit agreements of up to €100,000.
Although the new digital forms of lending have facilitated the credit process for consumers, such “easy money” often goes along with the risk of not being able to repay. Alluring advertising strategies of BNPL providers suggest credit can raise consumers’ living standards, but for the vulnerable population it ends up with a debt pile.
Therefore, an additional provision to the updated law mandates that credit advertising should always contain a clear and prominent warning that “borrowing money costs money”.
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