EU Council amendments favor BNPL providers
The Council of the EU, one of the legislative bodies of the European Union, agreed on Thursday (June 9) on the revision of the Consumer Credit Directive (CDD), paving the way for negotiations interinstitutional meetings which could begin by the end of June.
EU ministers responsible for trade, economy, industry and innovation have agreed to include several amendments to the original proposal submitted by the European Commission that could reduce transparency requirements for purchasing suppliers immediate, pay later (BNPL).
The Commission’s CCD proposal aims to respond to technological developments in the area of consumer credit by broadening its scope, introducing pricing rules for certain credits, clarifying information requirements and revising assessments of solvency.
The existing CCD, first introduced in 2008, covers the vast majority of consumer loans, ranging from €200 to €75,000. However, loans below 200 euros do not fall within its scope. This means that many of the BNPL loans so widely used today are not covered by the existing rules. The proposed CCD aims to change this situation by including BNPL schemes, payday loans, short-term overdrafts, interest-free credits and loans offered through crowdlending platforms.
On Thursday, the Council of the EU proposed to exclude certain products from the scope of the directive. Firstly, it excluded direct crowdfunding, since the provisions do not cover all aspects of this type of funding, in particular the protection of consumer lenders.
Secondly, under certain conditions, it also excluded deferred payments as well as deferred debit cards, which are more in line with payment habits. The Board has defined deferred payment as “a commercial practice which allows the consumer to pay for goods or services in installments, without interest and without credit from a third party”. Since BNPL services could also fall within this definition, and therefore benefit from the exclusion, the Board specifically excluded this possibility, indicating that BNPL is included in the scope of the proposal.
Nevertheless, the Council suggested that certain lower-risk credit products, which are likely to include BNPL, could benefit from an “optional partial waiver”. These four products are: loans of less than 200 euros; credit in the form of an overdraft facility; credit agreement without interest or other charges, and agreements with a maximum duration of three months and negligible costs.
When it comes to these types of credit, each Member State could opt for a regime that reduces pre-contractual information requirements and disclosure requirements and removes the prepayment provision. This amendment aims to reduce information overload for the consumer and bureaucratic overload for the creditor, the Council said.
Another amendment that may help creditors in general, including BNPL’s suppliers, concerns the time limit for providing pre-contractual information. The initial proposal suggested that creditors should send pre-contractual information to the consumer “at least one day before” the agreement was concluded. Instead, the Council suggested providing the information “in a timely manner”, which provides more flexibility.
After adopting this position on the legal text with the proposed changes, the Council can start negotiations with the European Parliament to reach a common agreement and adopt the legislation.
The European Parliament will probably vote on June 15 or 16 on the CCD proposal at committee level. This means that if the committee approves the text, a final vote in plenary session in parliament could take place before the summer holidays, most likely during the plenary session to be held in July. But for this to happen in time, the EU Parliament and Council need to iron out their small differences before giving final approval..
Read more: New EU consumer credit rules could be approved by summer