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COUNCIL OF THE EUROPEAN UNION		Brussels, 4 May 2006
	DS 352/06 LIMITE
	CONSOM

MEETING DOCUMENT

from :	Presidency
to :	Working Party on Consumer Protection and Information
No. Cion prop. :	13193/05 CONSOM 37 CODEC 865
Subject :	Preparation of the Council meeting (Competitiveness) on 29 May 2006 Modified proposal for a Directive of the European Parliament and of the Council on credit agreements for consumers amending Council Directive 93/13/EC - Policy debate

I. – INTRODUCTION

1. – The Commission submitted in September 2002 to the Council and the European Parliament a proposal for a Directive concerning credit for consumers.

– The Commission considered that the differences in national legislations constituted obstacles to the internal market and dissuaded business to offer pan-European products. Therefore, the proposal aimed at establishing the conditions for a genuine internal market, ensuring a high level of consumer protection and improving the clarity of EC regulation by recasting the three existing Directives on consumer credit (87/102/CE, 90/88/CE and 98/8/CE).

2. – The Council (Competitiveness) held a policy debate on this Commission's proposal on 19 May 2003. The great majority of delegations supported in general the objective of full harmonisation provided that the Directive does not lower the level of consumer protection. The Economic and Social Committee gave its opinion on 16-17 July 2003 and the European Parliament adopted its first-reading Opinion on 20 April 2004.

3. – The Commission integrated 108 from the 152 amendments proposed by the European Parliament and submitted its modified proposal on 29 October 2004. The consolidated text of the modified proposal was then forwarded to the Council on 13 October 2005.

4. – Following a presentation and general discussion under the UK Presidency, the Austrian Presidency concentrated the discussion in the Working Party on Consumer Protection and Information on an in-depth examination of the following key issues:

– - – scope and definitions (Articles 1 to 3),

– - – information requirements (Articles 4, 5 and 9),

– - – overdraft facility (Article 11) and overrunning (Article 17),

– - – right of withdrawal (Article13),

– - – linked transactions (Article14),

– - – early repayment (Article 15),

– - – regulation of creditors and credit intermediaries (Article 19) and

– - – harmonisation and mutual recognition (Article 21).

5. – The Presidency presented a compromise text on the above-mentioned issues with the view to finding mutually acceptable solutions.

– Following the comments made by delegations at Working Party level, it appears that a consensus could be reached in the future on a number of issues. Concerning issues of a more controversial nature, the Presidency considers that a policy debate at the Council level would be useful in order to give guidance on how the work in the Working Party should progress in the coming months.

6. – The Presidency has therefore decided to submit a questionnaire.

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ANNEX

QUESTIONS FOR THE POLICY DEBATE

I. – Harmonisation

– The existing Consumer Credit Directive (87/102/EC) is based on minimum harmonisation. Since its adoption, Member States adopted measures going to a different extent beyond the Directive’s provisions according to the needs at national level. As the relevant provisions of the Directive are mostly of a mandatory nature, these differences in national legislations constitute obstacles to the internal market. Consequently, the Commission proposed in September 2002 a Directive with the view to achieving full harmonisation.

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– In its first-reading Opinion of April 2004, the European Parliament preferred that this Directive provides for the level of harmonisation that would permit stricter provisions in order to achieve optimum protection for the consumer.

– The Commission based its modified proposal of October 2005 on the following considerations:

- – full harmonisation remains the only way to establish a genuine single market for consumer credit while at the same time guaranteeing an appropriate high level of consumer protection;

- – a certain degree of leeway to national implementation should be given in a restricted number of provisions, taking into account existing heterogeneity as regards national markets or national legislation and the principles of better regulation;

- – mutual recognition should complement the full harmonisation approach for a limited number of issues (exhaustively enumerated in Article 21(2) of the proposal), in order to ensure that the degree of flexibility provided for national implementation within the limits of the Directive does not contribute to raise additional barriers to the single market in consumer credit.

It should be noted that a combination of full harmonisation with mutual recognition in European Community consumer contractual law has been proposed for the first time.

At Consumer Protection and Information Working Party level, a large majority of delegations have expressed their support for the proposed full harmonisation approach. On the other hand, many concerns were voiced about the use of the mutual recognition clause, its impact on the level of consumer protection and the possible legal uncertainty with respect to the choice of applicable law.

The clause related to the use of mutual recognition has also been examined by the Civil Law Committee in the light of the 1980 Rome Convention on the law applicable to contractual obligations. In order to ensure coherence with international private law at European level the Committee suggested that a possible outcome would be either the deletion of this provision/clause or the application of only those provisions of the proposed Directive that would not have an impact on consumer's contractual rights. Two delegations stated that another possible outcome would be the acceptance of such a provision on the basis that there is sound internal market justification for it.

Questions:

a. – Do you agree with the full harmonisation approach on specific issues as currently proposed by the Commission in its proposal?

b. – Do you consider that the combination of the proposed level of harmonisation with the mutual recognition clause, as currently drafted in Article 21(2), will provide a high level of consumer protection and achieve the objectives of the single market in the area of consumer credit?

II. – Early repayment

The provisions related to early repayment of credits deserve careful consideration as the existing mechanisms in Member States differ significantly, specific obligations for creditors exist in some Member States whilst not in others. The Commission proposal foresees a fair and objective indemnity for early repayment, leaving Member States some leeway for their implementation. Delegations have therefore expressed diverging views on the proposed provisions of Article 15 of the Directive, namely on the right of the creditor to claim the fair and objective indemnity for early repayment.

Questions:

a. – Given that the Directive grants the consumer the right to discharge fully or partially his obligations under a credit agreement at any time, do you agree that the exercise of this right may be subject to the payment of an indemnity to the creditor?

b. – If yes, do you agree that this indemnity shall only apply in case of credits the amount of which exceeds a certain threshold or where the early repayment falls into a period for which a fixed borrowing rate is agreed and which exceeds one year?

III. – Cross-border comparability of the consumer credit agreements

Credit agreements are concluded under rules governing the contract which may differ significantly from one Member State to another. This may imply that the costs for a credit agreement of the same amount and subject to the same conditions may differ among Member States.

With a view to allowing the consumer to contract consumer credit agreements in another Member State than the one where he resides, it is necessary to ensure the full comparability of costs of such contracts. This should be achieved through an Annual Percentage Rate (APR) which would be calculated in the same way in all Member States on the basis of all relevant costs, including costs for insurances, which secure the amount of credit as well as taxes and notary costs. Such calculation is not comparable now as the constituent parts of the APR are not identical.

Questions:

Do you agree that the APR is the appropriate instrument for comparing credit offers?

In order to allow full cross-border comparability should the APR include all costs to be paid by the consumer or costs caused by the creditor?

IV. – Other issues

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In addition to the three issues for discussion mentioned above, the Presidency considers that following an in-depth discussion in the Working Party there could be a consensus reached in the future on a number of Articles, subject to future clarifications and without prejudice to the discussion on other parts of the proposed Directive. The Articles concerned could be:

– - – Article 5, paragraph 2 - Content of the pre-contractual information,

– - – Article 9, paragraph 2 - Content of the contractual information,

– - – Article 13 - Right of withdrawal,

– - – Article 14 - Linked transactions,

– - – Article 17 - Overrunning.

Question:

Do you agree that the suggestions of the Presidency concerning the above mentioned Articles are a good basis for possible consensus in the near future with the understanding that this does not prejudge the outcome of any future discussion?

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