ARTICLE...
One Year and Counting...
It might have been eight years in the making, but the Consumer Credit Directive must be implemented by the industry in less than a year. However, with regulations still unlikely to come up in the House of Commons until November at the earliest, the deadline of June 2010 is beginning to look increasingly tight.
The directive's scope is actually narrower than current UK consumer credit legislation. At present it excludes secured loans, pawn broking, hiring, leasing and business lending but these look set to be caught within its remit by the time it becomes law.
The directive itself is the usual mix of prescription and flexibility. Member states will be allowed a say in the regulation of lenders, how a customer's creditworthiness is assessed and how customers receive an adequate explanation of the credit they are applying for.
It is the latter two points which have piqued the most interest - and the greatest concerns - for the industry, following the publication of the government's consultation period.
In terms of assessing creditworthiness, the UK is lucky to have one of the EU's most sophisticated credit referencing systems. The existing framework, together with the OFT's upcoming guidance on irresponsible lending and lenders' current underwriting procedures, provide a robust platform for meeting the directive's requirements.
But some implementation proposals suggest that consumers could be required to carry around bank statements or pay slips when applying for credit, and face questions about their future circumstances. This would carry a fraud risk and could also raise invasion of privacy issues. Experts in credit scoring are all too aware that this data is only a mediocre indication of creditworthiness.
The recent reform in consumer credit has been designed largely to help people make more informed decisions. Information overload is therefore one of the key things being targeted by the directive's requirement to provide 'adequate explanation'.
'Summary boxes' are already widely used by credit companies and are a simple way to outline key information clearly and concisely. And, when used in conjunction with the all new Standard European Consumer Credit Information Form, this provides a firm foundation for companies to fulfil this part of the requirement.
With only a short time left to implement the directive should be based on existing good practice, while also avoiding measures that could adversely impact on the cost and the supply of credit in the future.
Original article by Fiona Hoyle, courtesy of CCR. For further information visit www.ccrmagazine.co.uk
