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On November 19, 2023, Directive (EU) 2023/2225 came into force. It revises the rules governing consumer credit agreements established in Directive 2008/48/EC (Consumer Credit Directive, CCD I) with the aim of enhancing consumer protection and aligning with the evolving digital landscape.

Unlike regulations, which are typically binding and directly applicable in every European Union (EU) member state, directives are binding only concerning the results that must be achieved, leaving the means of achieving these results up to the member states. To take effect, directives must first be transposed into the national legislation of each respective state.

Background of the new Directive (EU) 2023/2225

Directive 2008/48/EC was adopted in 2008 to harmonize consumer credit regulations across the EU, improve transparency of contractual terms, and ensure a high level of consumer protection. Despite leading to improvements in consumer protection enforcement, shortcomings were identified and emphasized in a series of reports published by the European Commission since 2014.

In 2020, a new evaluation revealed significant fragmentation among EU jurisdictions, indicating that CCD I had been only partially effective in ensuring high standards of consumer protection and promoting the development of a unified credit market.

Additionally, a report from the European Parliamentary Research Service in 2021 highlighted that digital transformation had brought significant changes to the credit market and posed new challenges for consumer protection, necessitating a new regulatory approach.

In response to these needs, on October 18, 2023, the European Parliament and the Council of the European Union adopted the new directive, CCD II, which has since entered into force.

Changes Introduced by Directive (EU) 2023/2225 (CCD II)

Expanded Scope

New limits

CCD II broadens the scope of its predecessor. While CCD I covered agreements with a value between €200 and €75,000, CCD II removes the minimum threshold and increases the maximum amount covered by agreements to €100,000. Moreover, regardless of this limit, its provisions apply to credit agreements exceeding €100,000 that are not secured by a mortgage or similar guarantee, specifically when aimed at renovating residential properties.

New Types of Loans

Furthermore, CCD II extends its scope to include specific types of loans not covered by CCD I. These include "buy now, pay later" schemes where creditors grant credit to consumers exclusively for purchasing goods or services from suppliers. These financial tools allow consumers to make purchases and pay over time, often without interest or additional charges.

Enhanced Transparency

Stricter Advertising Requirements

The new requirements aim to provide consumers with clear, concise, and reliable information that is easy to read or listen to. Consumers must be aware that borrowing money incurs costs.

Additionally, advertisements that mislead consumers into underestimating the risks of borrowing money and becoming burdened with debt are prohibited.

Change in Pre-contractual Information Requirements

The new Directive from 2023 aims to allow consumers to obtain the necessary data to compare different offers and make informed decisions. It requires key information (such as the identity of the creditor, the total amount of credit, and the interest rate) to be clearly and prominently provided on the first page of a specific form.

Pre-contractual information must be provided before signing the contract; otherwise, the consumer has the right to withdraw from it.

Information on Personalized Offers

Creditors and credit intermediaries are required to inform consumers clearly and comprehensibly when presenting personalized offers based on automated processing of personal data.

Prohibition of obscure offers

Prohibition of tying credit to other products, such as insurance, and providing unsolicited Credit

Stay tuned for Part 2 of this publication, where we will discuss changes in the Directive concerning creditworthiness assessment, the consumer's right to terminate a credit agreement, prevention of overindebtedness, implementation of alternative dispute resolution, and the enforcement of the new changes.