EU agrees on stronger consumer protection

Frankfurt, Brussels In the future, consumers in the EU will be better protected when taking out debt on the Internet and when making online purchases on credit, including “Buy now, pay later” (BNPL). Negotiators from the European Parliament and the EU states agreed on the so-called Consumer Credit Directive on Friday.

For example, information about loans must be made particularly clear and understandable – such as how much it costs to borrow money. At the same time, it should be better checked whether consumers can actually afford the loan and repay it later. The aim is to protect low-income households in particular from over-indebtedness and financial difficulties.

Consumer protection organizations welcomed the plans. From the point of view of Dorothea Mohn, head of the financial market team at the Federation of German Consumer Organizations (VZBV), the EU “provides a good framework for better protecting consumers on the credit market. For example, the directive should also include contract types such as buy now, pay later, zero percent financing and loans under 200 euros in the future.

Criticism of the booming BNPL business has grown recently, and the Swedish financial start-up Klarna is one of the major providers in Europe. Buying by installments when shopping online is an alternative to using the often expensive credit card for many consumers, especially in the USA. But there are increasing signs that everyday purchases are being financed in this way, even in Germany.

The risk is all the greater given high inflation, which is outstripping income growth. According to the credit agency Schufa, BNPL financing in Germany has recently increased significantly. According to a Schufa survey, half of consumers have used their savings in the past six months, twelve percent more than in the spring.

Consumer advocates see the danger of usury interest not banned

MEP Malte Gallée (Greens), who took part in the negotiations, sees the new requirements as an important contribution “to preventing growing over-indebtedness among consumers”. It is also an important adjustment of the rules to the digital age.

The new regulation expands existing rules to protect consumers when taking out debt to new forms of credit, the previous guideline from 2008 is updated.

Specifically, the rules should apply to loans under 200 euros and to crowdlending, whereby an online platform brokers money from private individuals to other people or companies. The agreement still has to be formally confirmed by parliament and the federal states, but this is considered a formality.

However, the VZBV sees gaps in the regulation with regard to excessively high interest rates. “The opportunity at EU level for effective protection against usurious interest rates was missed,” complains Mohn.

Finance Watch’s consumer protection experts consider the planned new regulation to be a decisive improvement. However, they criticize the fact that, for example, the costs for short-term loans are not further limited and that debit cards, with which payments are only debited from the account after a delay, have not been included in the new version of the directive.

The new rules go too far at one point, however, according to the Christian Democratic EPP: “The new version will mean that some consumers who are dependent on installment payments, for example, will no longer be able to get new mobile phones or household appliances, or at least the process will be much more bureaucratic,” warns Andreas Schwab (CDU), spokesman for the EPP group in the EU Parliament on the internal market and consumer protection policy.

In the future, device manufacturers will also not be allowed to offer interest- and fee-free installment payments with a term of more than 60 days without a preliminary check, although they themselves would bear the risk of default if they delivered the device.

With agency material.

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