Consumer Credit Directive – how does it affect you?

Once again, change looms over the credit industry, this time in the form of the Consumer Credit Directive. The final draft regulations (CCD regulations) have been published and are now with Parliamentary Counsel for scrutiny and clearance.

The CCD regulations are scheduled to be implemented by 11 June 2010. The tight timescale will be a challenge for many creditors, who may need to review their products, as well as update their systems and procedures to ensure compliance.

The scope of work is in fact vast. Creditors will, for example, be required to comply with new pre-contract information requirements in the shape of a Standard European Consumer Credit Information Sheet (SECCI). They will also need to make changes to standard documentation, understand alterations to the rules governing exempt agreements, implement tighter controls on checking the creditworthiness of potential borrowers, provide 'adequate explanations' to borrowers prior to concluding the agreement, extend the right of withdrawal and introduce a new method of calculating the APR.

The implications for the industry are much less drastic – but also less clear cut. Collectors and purchasers will need to understand the changes made to front end lending as a result of the CCD regulations. However, they also need to appreciate how this will affect their own business – in terms of the collectability of debt, sale and purchase negotiations and enforceability.

Debt collectors and purchasers are advised to investigate the CCD regulations will affect their ongoing obligations for the type of debt they manage or purchase. For example, now the debtor will be entitled to request an amortisation statement in relation to certain types of regulated agreement. Although this statement relates to future payments, debt collectors and purchasers should consider whether any additional information will be required from the original creditor at the time the debts are transferred or assigned.

The CCD regulations also require a notice of assignment to be given to a debtor where the rights of a creditor under a regulated agreement are assigned to a third party (unless the arrangements for administering the credit remain unchanged). While most assignees of debt already give notice to debtors, for those who do not and currently only take an equitable assignment, this change in law could be of great significance and would require a change in operating procedures.

Debt collectors and purchasers should also consider whether changes to front end lending procedures (for example, the tighter credit checks and the giving of adequate explanations to borrowers) will result in any change in the quality of collectability of the debt that they work.

At this stage in the implementation timetable, a key plus point for the industry is that the regulations implementing the CCD will only apply to agreements made on or after 11 June 2010. This will provide debt purchasers and collections companies with some breathing space while agreements falling under the CCD regulations filter through to their businesses.

Original article, by Anna Beech, courtesy of DBSG.

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