How does the new Directive (EU) 2023/2225 on credit agreements strengthen consumer protection?- Part 2

Heading: Trade Leadrs’ Guide and Consumers’ Reader

In Part 1 of this publication, we discussed the reasons behind the changes in Directive 2008 and the anticipated amendments in the new Directive 2023, particularly focusing on their scope and transparency compared to the old directive. We will continue with the remaining changes and the implementation timeline.

Assessment of Creditworthiness

Similar to Directive 2008, the new directive mandates creditors to conduct a thorough assessment of a consumer's creditworthiness before concluding a credit agreement. However, unlike its predecessor, CCD II imposes a limit on credit issuance, ensuring credit is accessible only when the assessment indicates the likelihood of meeting obligations under the credit agreement.

The Directive prohibits the requirement of sensitive personal information during credit assessment.

The required financial and other economic information for assessment must be in the consumer's interest and aim to prevent over-indebtedness.

Right to Terminate Agreement

The new Directive 2023 grants consumers the right to withdraw from credit agreements within 14 days without penalties and without needing to provide justification.

Overindebtedness prevention & remedy

Caps on Charges

Other amendments include caps on interest rates, annual percentage rates of charge, or total costs associated with credit agreements.

Education

Member States must promote increased financial literacy among the population.

Mitigation of Credit Risk

Creditors should make efforts for reasonable forbearance and tolerance before enforcing credit collection procedures, where appropriate.

Credit Counseling

The Directive mandates Member States to ensure the availability of credit counseling services for consumers.

Alternative Dispute Resolution (ADR) Regarding Pre-contractual Relationships

With the new changes, consumers now have access to Alternative Dispute Resolution (ADR) procedures in case of pre-contractual disputes, such as those related to pre-contractual information requirements, consultancy services, creditworthiness assessments, and information provided by credit intermediaries who receive remuneration from creditors and therefore do not have direct contractual relationships with consumers.

Consumer Protection and Expected Effects

According to a study conducted by the European Commission, these new measures are expected to positively impact consumer protection and reduce consumer detriment across the EU. The heightened transparency required for credit agreements and the prohibition of unsolicited credit offers are likely to promote more cautious decision-making processes. Clear awareness of available credit offers in the market will reduce the risk of consumers entering into high-cost agreements. Encouraging responsible practices and empowering consumers to better manage their financial obligations will decrease levels of indebtedness.

Implementation of CCD II Provisions and Applicable Legislation

Member states have 24 months to transpose and implement the provisions of CCD II. Directive 2008, initially adopted in 2008, is repealed effective November 20, 2026, but will continue to apply to any credit agreements concluded between the date CCD II came into force and November 20, 2026.

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