Davey sets out new consumer directive

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In an exclusive article for ePolitix.com, consumer affairs minister Ed Davey sets out details of the new Consumer Credit Directive as it comes into force.

Today should mark the change of a new and more responsible lending culture in the UK, as the Consumer Credit Directive comes into force.

Regulations to implement the Directive, in the form of amendments to the Consumer Credit Act and associated secondary legislation, were made in March 2010 and come fully into force today. The range of add-ons to the existing provisions that were in place means that there are strengthened consumer rights and increased obligations from lenders to their customers.

Consumers will now have clear and standardised information on any pre-contractual loan agreement throughout Europe, which will make it easier to shop around and get the best loan that's right for you and your circumstances. You can now walk away from a loan more easily, and pay it off more quickly should your circumstances change, all of which helps consumers to maintain a better financial conscientiousness.

On the lenders side, they will have to ensure that borrowers understand the details of a loan and carry out thorough checks on any borrowers, so you can be confident that what you receive is suitable for your circumstances.

These regulations should fall into place without customers needing to take any action and without them having to request special treatment. This in turn should reduce some of the uncertainty that can confuse making loan arrangements. However, it is important that everyone knows what they can expect from their lender and most importantly, what information they can expect and how to walk away from something that isn’t right for them.

But this is just one part of the story. Looking ahead, we want to consider other ways to empower consumers, creating the right environment to strengthen their choices and giving business the room to innovate in response. Consumers should be able to help themselves, provided they have the right help and information to do so. We want to do more to promote all these options as well continue to regulate as a last resort where necessary to provide a safety net for the most vulnerable.

The new provisions from the Consumer Credit Directive includes:

• a duty on the lender to provide standardised explanations about the credit on offer to the consumer;
• an obligation on the lender to check creditworthiness before offering or increasing credit;
• further requirements concerning information from credit reference databases if they form part of a lender's refusal for credit;
• a right for consumers to withdraw from a credit agreement within 14 days, without giving any reason;
• requirements to inform consumers when debts under a consumer credit agreement are sold on;
• requirements on credit intermediaries to disclose fees and links to creditors; and
• a right to make partial early repayments of loans

Edward Davey is Liberal Democrat MP for Kingston & Surbiton and minister for employment relations, consumer and postal affairs.

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