The introduction of the Mortgage Credit Directive (MCD) in 2014 brought about an improvement of consumer protection in the mortgage credit market in the EU. Nevertheless, there is a need to improve the MCD further to increase its effectiveness and ensure that consumers are adequately protected. In our view, the key amendments which need to be introduced to the MCD as part of its ongoing review are as follows:
- More prescriptive rules are needed specifying what type of data should be used for a creditworthiness assessment (CWA). A good CWA analyses the current financial capacity of the borrowers’ budget, based on the consumer’s income and expenditures as well as their credit and debt instalments.
- There is a need for more prescriptive rules on the format, content and presentation of advertising to ensure that mortgage credit advertising is not misleading as is currently often the case.
- Rules are needed to ensure consumer-friendly pre-contractual information. Pre-contractual information should not be too long and complex but at the same time must include all of the key information about the product (e.g. on costs and risks) in a prominent way. Moreover, consumers need to receive the pre-contractual information in sufficient time (at least 1 day) before the conclusion of a mortgage contract to allow them the time they need to read the information and compare offers.
- The directive needs to address challenges stemming from the digitalisation of the market. There is a need for the directive to regulate robo-advice and peer-to-peer lending. Moreover, there is a need to address practices used by mortgage providers online to exploit consumers such as the use of pre-ticked boxes.
- To help achieve the goal of carbon-neutrality by 2050 as set out in the European Green Deal, the MCD should introduce rules promoting the uptake of green mortgages. To this end, incentives should be introduced for consumers to purchase these products and for creditors to offer them.
- The MCD needs more robust forbearance rules to ensure that creditors have to consider reasonable forbearance measures in circumstances where consumers are in financial hardship.
- Caps should be introduced to penalties for early repayment similar to the provisions included in the European Commission legislative proposal on the Consumer Credit Directive (CCD) as these costs are currently often unreasonably high.