On November 19, 2023, Directive (EU) 2023/2225 (Consumer Credit Directive II, CCD II) entered into force. The CCD II revises the rules on consumer credit agreements set out in Directive 2008/48/EC (Consumer Credit Directive, CCD I) to enhance consumer protection and align them with the latest advancements in digital transformation.
Unlike regulations, which are generally binding and directly applicable in every European Union (EU) member state, directives are binding only with regard to the result that must be achieved; the means are up to the member state. To become effective, directives must first be transposed into national law by the individual state. (Consolidated Version of the Treaty on the Functioning of the European Union (TFEU) art. 288, para. 3.)
Background to the New Directive
CCD I was adopted in 2008 to harmonize the regulation of consumer credit across the EU, improve transparency of contract terms, and guarantee a high level of consumer protection. However, although the directive has led to improvements in enforcing consumer protection, deficiencies have been detected and highlighted in a series of reports published by the European Commission since 2014.
In 2020, a new evaluation showed significant fragmentation across the EU jurisdictions, demonstrating that CCD I had been only partially effective in ensuring high standards of consumer protection and fostering the development of a single credit market.
Additionally, a report produced by the European Parliamentary Research Service in 2021 noted that the digital transformation had imposed significant changes in the credit market and led to new challenges for customer protection that required a new regulatory approach.
To respond to such needs, on October 18, 2023, the European Parliament and the Council of the European Union (Council) adopted the new directive, CCD II, which was published in the Official Journal on October 30, 2023, and entered into effect on the 20th day after its publication.
Enlarged Scope
CCD II broadens the scope of the previous directive. CCD I covered only agreements with a value comprising between 200 euros and 75,000 euros (€) (about US$217 and $81,518). (CCD I, art. 2, para. 2(c).) CCD II expands the coverage by eliminating any reference to a minimum threshold and modifying the maximum amount of credit covered by the agreements to €100,000 (about US$108,690). (CCD II, art. 2, para. 2(c).) It also provides that, notwithstanding this limit, its provisions apply to credit agreements for more than €100,000 that are not secured by a mortgage or other comparable security, where the purpose of the credit agreements is the renovation of a residential immovable property. (Art. 2, para. 3.)
Additionally, CCD II extends the scope to particular types of loans not included in CCD I. Among these are “buy now, pay later” schemes, whereby the creditor grants credit to a consumer for the exclusive purpose of purchasing goods or services provided by a supplier. These new financial tools let consumers make purchases and pay them off over time and are often granted free of interest and without any other charges. (CCD II, recital 16, art. 2.)
Enhanced Transparency
CCD II defines stricter advertising requirements to provide consumers with clear, concise, and reliable information. Additionally, it prohibits abusive practices that would lead consumers to underestimate the dangers of borrowing money and might result in overindebtedness. (Arts. 7, 8.)
Furthermore, CCD II amends precontractual information requirements to allow consumers to acquire the necessary data to compare different offers and make informed decisions. It requires that key information (such as the identity of the creditor, the total amount of credit, and the borrowing rate) is provided in a clear, prominent way on the first page of a dedicated form. (Arts. 10, 11.)
Finally, without prejudice to article 22 of the General Protection Regulation, CCD II requires that creditors and credit intermediaries inform consumers in a clear and understandable manner when they are presented with a personalized offer that is based on automated processing of personal data. (Art. 13).
Assessment of Creditworthiness
Similar to CCD I, CCD II provides that before concluding a credit agreement, creditors must carry out a thorough assessment of the consumer’s creditworthiness. (Art. 18, para. 1.) However, unlike the previous directive, CCD II imposes a limit on credit granting, prescribing that credit will be accessible only when the creditworthiness assessment indicates that the obligations resulting from the credit agreement are likely to be met. (Art. 18, para. 6.)
Right to Terminate the Agreement
CCD II gives consumers the right to withdraw from the credit agreement within 14 days without penalty and with no obligation to provide justification. (Art. 26 para. 1.)
Caps on Charges
Other amendments include caps on interest rates, annual percentage rates of charge, or the total costs of the credit agreement. (Art. 31, paras. 1, 2.)
Consumer Protection and Foreseeable Effects
According to a study conducted by the European Commission, these new measures are expected to have a positive impact on consumer protection and reduce consumer detriment across the EU.
The enhanced level of transparency required for credit agreements and the ban on unsolicited credit offers will likely promote a more careful decision-making process. (Study, at 17–18, 99–100.) The possibility of gaining clear knowledge of the credit offers available on the market will reduce the risk that consumers enter into high-cost agreements. (At 2, 13–15, 102.) Ensuring more responsible practices and empowering consumers to better manage their financial obligations will reduce the level of overindebtedness. (At 13–14, 23–24, 102.)
Similarly, establishing interest rate caps and limiting the chargeable costs are expected to lower the cost of credit to the benefit of vulnerable consumers. (At 16–17, 99.)
Implementation of CCD II’s Provisions and Applicable Law
Member states now have 24 months to transpose and implement CCD II’s provisions. (CCD II, art. 48.) CCD I is repealed with effect from November 20, 2026, but will continue to apply to any credit agreements concluded between the date CCD II entered into force and November 20, 2026. (Art 47.)
Prepared by Sarah Bandini, Law Library Intern, under the supervision of Jenny Gesley, Foreign Law Specialist
December 29, 2023
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