EUROPEAN UNION: Better Consumer Credit Disclosure is Needed

While consumer finance practices are improving in Europe, they still have a long way to go. EUobserver.com notes that in a September 2011 survey of the 27 European Union countries plus Iceland and Norway, two-thirds of 242 banks (and another 320 intermediaries) failed to meet the EU requirements on consumer credit disclosure. Every country except four (Bulgaria, Greece, Iceland and Ireland) reported problems in banks failing to meet the minimum standards of EU consumer law.

In the UK, the Office of Fair Trading found that in a sample of 47 websites of credit providers targeting sub-prime or “non-status” consumers, 38 failed to comply with EU law. The failure rate was still higher in Spain where the National Institute for Consumer Protection discovered that 29 out of 29 credit websites failed the test.

The most common violations were failure to disclose the annual percentage rate (APR) on credit and indicate if interest rates were fixed or variable. Also inaccurate was information on requirements to obtain personal insurance as collateral for the consumer credit.

To date, the names of the offending banks have not been publicly released.

However the European Commission’s own website provides additional detail. It notes that of the 562 websites that were checked, the most common problems regarding consumer credit were three-fold:

1)       Missing information in advertising: Advertising on 46% of websites did not include some of the standard information required by the Consumer Credit Directive, specifically, the annual percentage rate of charge (APR), information on whether charges on obligatory ancillary services (such as insurance) were included in the total cost, and the length of time for which the credit agreement was valid.

2)      Missing key information on offers: 43% of websites failed to give full information about the total cost, in particular the type of interest rate (fixed, variable or a combination of both) and detail about extra costs related to the credit, such as an arrangement fee.

3)      Misleading presentation of the costs: 20% of websites gave misleading information about the way the price is calculated or the total cost for consumer credits where insurance is obligatory.

In the coming months, the national enforcement authorities have been asked to contact the financial institutions and request clarifications or corrections to the websites, under penalty of legal action leading to possible fines or closure of the institutions’ websites. The national authorities have also been requested to report back to the European Commission by the autumn of 2012 on the actions taken. The Commission will thereafter report publicly on the results.

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