New mystery shopping unveils concerns on credit products currently not in scope of EU regulation

  • New Finance Watch study unearths data on problematic issues currently debated as part of the Consumer Credit Directive (CCD) Review
  • The findings are based on a mystery shopping exercise conducted across four EU Member States
  • Concerns regarding 6 credit products currently not in scope of the CCD

BRUSSELS, 25 March 2022 – A new study released today by Finance Watch provides fresh data confirming the need to expand the scope of the Consumer Credit Directive (CCD) to all of the credit products the European Commission proposed to bring into the scope in its legislative proposal from June 2021. These products are: free interest rate credit – buy now pay later schemes and deferred debit cards – , loans under 200 euros such as payday loans, Peer-to-Peer (P2P) Lending, car leasing, and overdrafts and overrunning. The findings are based on data collected in the winter 2021-2022 from 126 cases using mystery shoppers in France, Italy, Denmark and the Czech Republic, complemented by five qualitative questionnaires filled out by experts in the field from Italy, Germany, Denmark, the Czech Republic and the Netherlands.

The findings exposed widespread malpractices by lenders, in particular with regards to risky new products that are currently not in the scope of the CCD. The study further revealed that the products currently not in scope of the directive are largely sold to lower income (vulnerable) consumers at high costs. In light of this, and the fact that the size of a loan is always proportional to a consumer’s overall budget, there is not only an urgent need to bring these products into the scope of the directive but also to apply the full CCD regime to them.

Serious malpractices with regards to creditworthiness assessments (CWAs) and advertising

The report confirms concerns raised by the previous study released in 2021 by Finance Watch with regards to creditworthiness assessments (CWAs) and advertising malpractices on the EU consumer credit market. Our study shows that CWAs are poor for all types of loans in scope of the exercise and the majority of CWAs do not use all relevant data needed to adequately assess if the consumer is able to repay a loan. This situation likely leads to the significant mis-selling of loans to consumers who are not able to afford them and, therefore, to over-indebtedness. With regards to advertising, our study reveals that consumer credit advertising is often misleading and does not provide any information about the key features of loans such as costs and risks.

Peter Norwood, co-author of the report, said: “The study provides hard data that shows the absolute necessity to bring new and risky credit products into the scope of the CCD. Despite being largely low in value, our study confirms they are high risk for the types of consumers who typically purchase such products: vulnerable (lower income) consumers. These products have high costs, in particular from the consumers’ financial perspective. Any exclusion of these products from the CCD scope or even from the application of the full CCD regime puts vulnerable consumers at great risk of over-indebtedness.

Our policy recommendations

Finance Watch recommends the following amendments to the Directive:

1. The full regime of the CCD needs to be applied to the products the European Commission proposes to bring into the scope of the CCD. A ‘light regime’, meaning that not all CCD rules would be applied to these products,is not proportionate given these products’ high levels of risk for the consumers who typically purchase them.

2. More regulatory requirements are needed for overrunning than are currently in place via the CCD. The CWA, cost cap, and pre-contractual information requirements should also apply to these products to avoid mis-selling and over-indebtedness.

3. Mandatory cost caps should be in place for the Annual Percentage Rate (APR) of Charge for loans. The calculation method for these cost caps should be harmonised at EU level to ensure an equal level of protection for consumers and a level playing field for credit providers. In addition, the CCD must specify that the APR should also include the cost of any insurance or other financial product purchased along with the credit.

4. More prescriptive rules are needed in the CCD specifying what kind of data should be used for a CWA to ensure that an adequate assessment of a consumer’s ability to afford credit is performed. Such requirements should cover financially relevant data needed to assess the borrowers’ household budget based on income and expenditures, as well as their credit and debt installments. The CWA requirements laid down in the Guidelines of the European Banking Authority (EBA) on loan origination and monitoringshould become a legal obligation in the Level 1 text of the CCD.

5. More prescriptive rules are needed in the CCD on the content and format of advertising to ensure that advertising is not misleading and that consumers are informed about the essential features of a credit product. Key information about the loan such as costs and risks must be included and clearly and prominently displayed in the advertisement.

6. Strong and harmonised forbearance measures should be introduced in the CCD. In addition, there is a need to oblige creditors to have monitoring processes in place to detect consumers’ financial difficulties early so that forbearance measures can be put in place before the situation becomes too aggravated.

Julia Symon, Head of Research & Advocacy at Finance Watch, concluded: “One of the major factors for widespread mis-selling of consumer credits is a low quality of creditworthiness assessments by lenders. In 37 % of cases, a CWA was not performed at all, whereas in 62% of cases, the CWA did not include a proper analysis of a household’s budget. This demonstrates an urgent need for more prescriptive requirements on data to be used for a CWA. The EBA Guidelines on loan origination and monitoring already list the relevant data needed for a consumer credit assessment. These requirements should be introduced in the Level 1 text of the CCD to make sure that all credit providers apply them.”

– Download the report: “Tackling causes of over-indebtedness in the EU consumer credit market” (24p.)

– Read the summary: “Online Expert Dialogue: New data for the Consumer Credit Directive review” (28 slides)

For more information, contact: Peter Norwood, Senior Research & Advocacy Officer at Finance Watch +32 (0)2 899 04 35 or at

Notes to editors:

Background on the consumer credit market

The consumer credit market plays an important role in Europe as evidenced by its significant growth in the last two decades. Between 1997 and 2017, household debt in Europe increased from 39.3% to 50% of nominal GDP. In 2017 the outstanding amount of consumer credit in the EU-28 was around €1,800 billion. In September 2019, EU banks’ exposure to consumer loans stood at €1.14 trillion, up by 14% compared with September 2015 (€1 trillion). Consumer credit growth has outpaced overall credit growth (+10%) over the same period. In terms of market size, the biggest EU consumer credit markets are Germany, France, Italy, Spain and Poland. The upward trend in consumer credit sales has, at least in part, been driven by the historically low interest rates which Europe has been experiencing for almost a decade.

The consumer credit market has significantly changed in the last decade. The market is being increasingly digitalised and more and more consumers are purchasing their credits online without any physical interaction with credit providers. In 2015, across 10 EU countries, 20% of consumers completed the entire sales process for a consumer credit (searching and purchasing the loan) online. This trend has led many traditional credit providers and intermediaries to adapt their business models and to distribute their consumer credit products through digital channels, including by partnering with new Fintech companies. New non-bank players such as peer-to-peer lenders have also entered the market.

In addition, the market has seen the emergence and growing use of new credit products and services in the last ten years. For example, peer-to-peer lending has emerged as part of the digitalization trend described above. These products are sold via peer-to-peer lending platforms that enable people to borrow directly from other private individuals online. In addition, payday loans (short-term loans with very high costs to consumers), buy now pay later schemes (credit that allows customers to defer payment to a later date or pay in instalments when purchasing a good via certain retailers often without initial interest payments but high late payment fees), and deferred debit cards have become increasingly commonplace.

Despite the increasing digital trend of the market, cross-border sales of consumer credits have remained very low in the EU. The study on the role of digitalisation and innovation in creating a true single market for retail financial services and insurance, for example, shows that only 0.8% of household loans granted in the euro area are currently sold across borders and that consumers’ lack of trust in cross-border products is a key barrier to the development of a single market.

About Finance Watch

Finance Watch is an independently funded public interest association dedicated to making finance work for the good of society. Its mission is to strengthen the voice of society in the reform of financial regulation by conducting advocacy and presenting public interest arguments to lawmakers and the public. Finance Watch’s members include consumer groups, housing associations, trade unions, NGOs, financial experts, academics and other civil society groups that collectively represent a large number of European citizens. Finance Watch’s founding principles state that finance is essential for society in bringing capital to productive use in a transparent and sustainable manner, but that the legitimate pursuit of private interests by the financial industry should not be conducted to the detriment of society.

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