1. Consumer Protection in the EU Financial System EU-China Summer School 2014 Dr. Christina Livada 1

2. Table of contents A. The Treaty on the Functioning of the European Union B. Protection of the economic interests of consumers of financial services C. The Basic Concepts D. Unfair Commercial Practices E. Unfair Contractual Terms F. Consumer Credit G. Mortgage Credit 2

3. A. The Treaty on the Functioning of the European Union Article 169 (ex Article 153 TEC) 1. 1. In order: to promote the interests of consumers and to ensure a high level of consumer protection, the Union shall contribute to protecting the: health, safety and economic interests of consumers, as well as to promoting their right to information, education and to organise themselves in order to safeguard their interests. 3

4. A. The Treaty on the Functioning of the European Union Article 169 (ex Article 153 TEC) 2. The Union shall contribute to the attainment of the objectives referred to in paragraph 1 through: (a) measures adopted pursuant to Article 114 in the context of the completion of the internal market; (b) measures which support, supplement and monitor the policy pursued by the Member States. 4

5. A. The Treaty on the Functioning of the European Union Article 169 (ex Article 153 TEC) 3. The European Parliament and the Council, acting in accordance with the ordinary legislative procedure and after consulting the Economic and Social Committee, shall adopt the measures referred to in paragraph 2(b). 4. Measures adopted pursuant to paragraph 3 shall not prevent any Member State from maintaining or introducing more stringent protective measures. Such measures must be compatible with the Treaties. The Commission shall be notified of them. 5

6. B. Protection of the economic interests of consumers of financial services 1. Rationales for regulatory intervention The policy concern consists both in: reducing the information asymmetry that exists between consumers and financial providers, reducing the information asymmetry that exists between consumers and financial providers, addressing the problem of consumers’ reduced negotiating capacity vis- à-vis financial service providers, mainly due to the expanded use of general terms of transactions addressing the problem of consumers’ reduced negotiating capacity vis- à-vis financial service providers, mainly due to the expanded use of general terms of transactions addressing the problem of over-indebtedness especially as regards consumer lending: in recent years the combating (i.e. prevention and containing) of consumers’ over-indebtedness has been elevated to a separate rationale for regulatory intervention with a view to avoid negative consequences of over-indebtedness socially and economically addressing the problem of over-indebtedness especially as regards consumer lending: in recent years the combating (i.e. prevention and containing) of consumers’ over-indebtedness has been elevated to a separate rationale for regulatory intervention with a view to avoid negative consequences of over-indebtedness socially and economically 6

7. B. Protection of the economic interests of consumers of financial services 2. Policy instruments: reducing information asymmetry the provision of adequate information to consumers in connection with the transactions and the content of the contracts they conclude (prior, at the conclusion and during the contract) the provision of adequate information to consumers in connection with the transactions and the content of the contracts they conclude (prior, at the conclusion and during the contract) the prohibition of unfair commercial practices the prohibition of unfair commercial practices 7

8. B. Protection of the economic interests of consumers of financial services 2. Policy instruments: addressing the problem of reduced negotiating capacity (cont.) the elimination of abusive contractual terms the elimination of abusive contractual terms the safeguarding of certain crucial consumers’ rights (i.e. the right of withdrawal, the right of early repayment) the safeguarding of certain crucial consumers’ rights (i.e. the right of withdrawal, the right of early repayment) the possibility of a recourse either to justice or to out-of-court settlement systems the possibility of a recourse either to justice or to out-of-court settlement systems 8

9. B. Protection of the economic interests of consumers of financial services 2. Policy instruments: addressing the problem of over-indebtedness (cont.) Rules on: responsible lending and responsible lending and consumers’ bankruptcy consumers’ bankruptcy 9

10. B. Protection of the economic interests of consumers of financial services Dynamics and variability of the policy objectives justifying regulatory intervention in the financial system, given the conditions prevailing in the economy and in society. Examples of: the objective of combating consumers’ over-indebtedness, which arose in the late 1990s, as a result of the full liberalisation of consumer credit and the subsequent extensive exposure of households to debt, the objective of combating consumers’ over-indebtedness, which arose in the late 1990s, as a result of the full liberalisation of consumer credit and the subsequent extensive exposure of households to debt, the rationale pertaining to the combating of terrorist financing through the financial system arose mostly following the terrorist attacks in the USA on September 11, 2001 the rationale pertaining to the combating of terrorist financing through the financial system arose mostly following the terrorist attacks in the USA on September 11, 2001 10

11. C. The basic concepts ‘consumer’ means: any natural person who is acting for purposes which are outside his trade, business, craft or profession; ‘trader’ means: any natural or legal person who is acting for purposes relating to his trade, business, craft or profession and anyone acting in the name of or on behalf of a trader; 11

12. C. The basic concepts The average consumer The fairness or unfairness of a commercial practice is assessed against the “average consumer” benchmark. The average consumer, as interpreted by the Court of Justice of the European Union, is: “reasonably well-informed and “reasonably well-informed and reasonably observant and circumspect”, reasonably observant and circumspect”, taking into account social, cultural and linguistic factors. taking into account social, cultural and linguistic factors. If a commercial practice is directed at a particular group of consumers (such as vulnerable categories of consumers, then an average member of that group is the benchmark 12

13. D. Unfair Commercial Practices Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market (‘Unfair Commercial Practices Directive) Unfair commercial practices shall be prohibited. A commercial practice shall be unfair if: (a) it is contrary to the requirements of professional diligence, and (b) it materially distorts or is likely to materially distort the economic behaviour with regard to the product of the average consumer whom it reaches or to whom it is addressed, or of the average member of the group when a commercial practice is directed to a particular group of consumers. 13

14. D. Unfair Commercial Practices In particular, commercial practices shall be unfair which: (a) are misleading as set out in Articles 6 and 7 (of the Directive), or (b) are aggressive as set out in Articles 8 and 9 (of the Directive). Annex I of the Directive contains the list of those commercial practices which shall in all circumstances be regarded as unfair. The same single list shall apply in all Member States and may only be modified by revision of this Directive. 14

15. D. Unfair Commercial Practices A commercial practice (action) shall be regarded as misleading if: it contains false information and is therefore untruthful or in any way, including overall presentation, deceives or is likely to deceive the average consumer, even if the information is factually correct, in relation to one or more of the following elements (see next slide), and in either case causes or is likely to cause him to take a transactional decision that he would not have taken otherwise, 15

16. D. Unfair Commercial Practices A commercial practice shall be regarded as misleading if: … (a) the existence or nature of the product; (b) the main characteristics of the product, such as its availability, benefits, risks, execution, composition, accessories, after sale customer assistance and complaint handling, method and date of manufacture or provision, delivery, fitness for purpose, usage, quantity, specification, geographical or commercial origin or the results to be expected from its use, or the results and material features of tests or checks carried out on the product; 16

17. D. Unfair Commercial Practices A commercial practice shall be regarded as misleading if: … (c) the extent of the trader’s commitments, the motives for the commercial practice and the nature of the sales process, any statement or symbol in relation to direct or indirect sponsorship or approval of the trader or the product; (d) the price or the manner in which the price is calculated, or the existence of a specific price advantage; (e) the need for a service, part, replacement or repair; 17

18. D. Unfair Commercial Practices A commercial practice (omission) shall be regarded as misleading if: in its factual context, taking account of all its features and circumstances and the limitations of the communication medium, it omits material information that the average consumer needs, according to the context, to take an informed transactional decision and thereby causes or is likely to cause the average consumer to take a transactional decision that he would not have taken otherwise. 18

19. D. Unfair Commercial Practices A commercial practice shall be regarded as aggressive if: in its factual context, taking account of all its features and circumstances, by harassment, coercion, including the use of physical force, or undue influence, it significantly impairs or is likely to significantly impair the average consumer’s freedom of choice or conduct with regard to the product and thereby causes him or is likely to cause him to take a transactional decision that he would not have taken otherwise 19

20. D. Unfair Commercial Practices Undue influence? YES: If a consumer is already indebted to a trader and behind with payments, the trader would be using undue influence if he said he would reschedule the debt on condition that the consumer bought another product. NO: Offering an incentive to a consumer, such as a free bus to an out-of- town store, or refreshments while shopping, is not undue influence. The consumer's ability to make an informed transactional decision would not be impaired. In the same way, it would be acceptable to offer a sales promotion. 20

21. D. Unfair Commercial Practices EXAMPLE High-speed WiMAX Internet for just €29.95 per month… and UNLIMITED telephone support! Manuel purchases an Internet connection from ShoveIT. He’s a bit wary at first because WiMAX is a relatively new technology, but decides to go ahead since the advertisement says that the subscription includes unlimited telephone support. He assumes that the telephone support is included in his monthly subscription. 21

22. D. Unfair Commercial Practices 1 st EXAMPLE High-speed WiMAX Internet for just €29.95 per month… and UNLIMITED telephone support! Sure enough, Manuel has some trouble with his connection. When he calls the technical support hotline, however, a lengthy welcome message says that the call will cost 50 cents per minute. Manuel is put on hold for nearly 10 minutes. When he finally gets through to a support engineer, the call is disconnected before the technical issue is resolved. An exasperated Manuel dials in again and is put on hold for another 10 minutes. Now he knows why the company is called “ShoveIT”. 22

23. D. Unfair Commercial Practices Price Transparency In the case of commercial communication (advertising, website of the trader) including the description of the product or the service and its price, the trader must provide information on: the main characteristics of the product; its geographical address and identity; the price inclusive of taxes and all additional charges (freight, delivery, post etc.); the arrangements for payment, delivery, performance and the complaint- handling policy if they depart from the requirements of professional diligence; 23

24. D. Unfair Commercial Practices 2 nd EXAMPLE Sophie sees the following advertisement in a women's magazine. Get it for free SweetDreams™ the exclusive fragrance from Yves Blanchard To receive your complementary fragrance sampler, please send in the attached reply card with your credit card authorisation for €29.95 to defray the cost of shipping and handling. She sends in the reply card and receives her bottle of fragrance. Later on, however, she sees the same 100 ml bottle of fragrance available in a shop for only €14.95. Question: Is Sophie the victim of an unfair commercial practice? 24

25. D. Unfair Commercial Practices Answer: Yes The fragrance sampler is not actually free because the consumer has to pay €29.95 (which is also actually far more than the cost of shipping and handling). Sophie should now contact one of her national consumer associations or the Ombudsman and ask them for advice on how to lodge a complaint against the retailer. 25

26. D. Unfair Commercial Practices COMMERCIAL PRACTICES WHICH ARE IN ALL CIRCUMSTANCES CONSIDERED UNFAIR Misleading commercial practices (indicative) Passing on materially inaccurate information on market conditions or on the possibility of finding the product with the intention of inducing the consumer to acquire the product at conditions less favourable than normal market conditions Claiming in a commercial practice to offer a competition or prize promotion without awarding the prizes described or a reasonable equivalent Describing a product as ‘gratis’, ‘free’, ‘without charge’ or similar if the consumer has to pay anything other than the unavoidable cost of responding to the commercial practice and collecting or paying for delivery of the item 26

27. D. Unfair Commercial Practices COMMERCIAL PRACTICES WHICH ARE IN ALL CIRCUMSTANCES CONSIDERED UNFAIR Aggressive commercial practices (indicative) Creating the impression that the consumer cannot leave the premises until a contract is formed Conducting personal visits to the consumer’s home ignoring the consumer’s request to leave or not to return except in circumstances and to the extent justified, under national law, to enforce a contractual obligation Making persistent and unwanted solicitations by telephone, fax, e-mail or other remote media except in circumstances and to the extent justified under national law to enforce a contractual obligation. This is without prejudice to Article 10 of Directive 97/7/EC and Directives 95/46/EC (1) and 2002/58/EC 27

28. E. Unfair Contractual Terms Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts - The rationales the laws of Member States relating to the terms of contract, and in particular the laws relating to unfair terms, between: the laws of Member States relating to the terms of contract, and in particular the laws relating to unfair terms, between: the seller of goods or supplier of services, and the seller of goods or supplier of services, and the consumer of them, the consumer of them, show many disparities, with the result that the national markets for the sale of goods and services to consumers differ from each other and that distortions of competition may arise amongst the sellers and suppliers, notably when they sell and supply in other Member States; responsibility of the Member States to ensure that contracts concluded with consumers do not contain unfair terms; responsibility of the Member States to ensure that contracts concluded with consumers do not contain unfair terms; 28

29. E. Unfair Contractual Terms Council Directive 93/13/EEC on unfair terms in consumer contracts The rationales responsibility of the Member States to ensure that contracts concluded with consumers do not contain unfair terms; responsibility of the Member States to ensure that contracts concluded with consumers do not contain unfair terms; generally speaking, consumers do not know the rules of law which, in Member States other than their own, govern contracts for the sale of goods or services; this lack of awareness may deter them from direct transactions for the purchase of goods or services in another Member State; generally speaking, consumers do not know the rules of law which, in Member States other than their own, govern contracts for the sale of goods or services; this lack of awareness may deter them from direct transactions for the purchase of goods or services in another Member State; 29

30. E. Unfair Contractual Terms Council Directive 93/13/EEC on unfair terms in consumer contracts The rationales in order to facilitate the establishment of the internal market and to safeguard the citizen in his role as consumer when acquiring goods and services under contracts which are governed by the laws of Member States other than his own, it is essential to remove unfair terms from those contracts; in order to facilitate the establishment of the internal market and to safeguard the citizen in his role as consumer when acquiring goods and services under contracts which are governed by the laws of Member States other than his own, it is essential to remove unfair terms from those contracts; more effective protection of the consumer can be achieved by adopting uniform rules of law in the matter of unfair terms; more effective protection of the consumer can be achieved by adopting uniform rules of law in the matter of unfair terms; those rules should apply to all contracts concluded between sellers or suppliers and consumers; those rules should apply to all contracts concluded between sellers or suppliers and consumers; 30

31. E. Unfair Contractual Terms Council Directive 93/13/EEC on unfair terms in consumer contracts The purpose of the Directive and the principle of minimum harmonization The purpose of this Directive is to approximate the laws, regulations and administrative provisions of the Member States relating to unfair terms in contracts concluded between a seller or supplier and a consumer (article 1) The purpose of this Directive is to approximate the laws, regulations and administrative provisions of the Member States relating to unfair terms in contracts concluded between a seller or supplier and a consumer (article 1) Member States may adopt or retain the most stringent provisions compatible with the Treaty in the area covered by the Directive, to ensure a maximum degree of protection for the consumer (principle of minimum harmonization) (article 8) Member States may adopt or retain the most stringent provisions compatible with the Treaty in the area covered by the Directive, to ensure a maximum degree of protection for the consumer (principle of minimum harmonization) (article 8) 31

32. E. Unfair Contractual Terms Council Directive 93/13/EEC on unfair terms in consumer contracts The definitions (articles 2-3) ‘Unfair term’: a contractual term a contractual term which has not been individually negotiated: a term shall always be regarded as not individually negotiated: which has not been individually negotiated: a term shall always be regarded as not individually negotiated: where it has been drafted in advance and where it has been drafted in advance and the consumer has therefore not been able to influence the substance of the term, particularly in the context of a pre-formulated standard contract. The fact that certain aspects of a term or one specific term have been individually negotiated shall not exclude the application of this Article to the rest of a contract if an overall assessment of the contract indicates that it is nevertheless a pre-formulated standard contract. Where any seller or supplier claims that a standard term has been individually negotiated, the burden of proof in this respect shall be incumbent on him. the consumer has therefore not been able to influence the substance of the term, particularly in the context of a pre-formulated standard contract. The fact that certain aspects of a term or one specific term have been individually negotiated shall not exclude the application of this Article to the rest of a contract if an overall assessment of the contract indicates that it is nevertheless a pre-formulated standard contract. Where any seller or supplier claims that a standard term has been individually negotiated, the burden of proof in this respect shall be incumbent on him. 32

33. E. Unfair Contractual Terms Council Directive 93/13/EEC on unfair terms in consumer contracts The definitions (articles 2-3) ‘Unfair term’: A term shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract, to the detriment of the consumer The question is whether the term causes the significant imbalance: against the customer, and against the customer, and in a manner or to an extent which is in breach of good faith (fair and open dealing) in a manner or to an extent which is in breach of good faith (fair and open dealing) 33

34. E. Unfair Contractual Terms Openness requires that the terms should be expressed: fully, fully, clearly and clearly and legibly legibly containing no concealed pitfalls or traps. Fair dealing requires that a supplier should not, whether deliberately or unconsciously, take advantage of the customer’s necessity, indigence, lack of experience, unfamiliarity with the subject matter of the contract Significant imbalance: one connotation is that the imbalance must be really serious or exceptional one connotation is that the imbalance must be really serious or exceptional another connotation of ‘significant’ is important another connotation of ‘significant’ is important 34

35. E. Unfair Contractual Terms Annex - An indicative and non-exhaustive list of the terms which may be regarded as unfair: Terms which have the object or effect of: inappropriately excluding or limiting the legal rights of the consumer vis-à- vis the seller or supplier or another party in the event of total or partial non- performance or inadequate performance by the seller or supplier of any of the contractual obligations, including the option of offsetting a debt owed to the seller or supplier against any claim which the consumer may have against him; inappropriately excluding or limiting the legal rights of the consumer vis-à- vis the seller or supplier or another party in the event of total or partial non- performance or inadequate performance by the seller or supplier of any of the contractual obligations, including the option of offsetting a debt owed to the seller or supplier against any claim which the consumer may have against him; making an agreement binding on the consumer whereas provision of services by the seller or supplier is subject to a condition whose realization depends on his own will alone; making an agreement binding on the consumer whereas provision of services by the seller or supplier is subject to a condition whose realization depends on his own will alone; permitting the seller or supplier to retain sums paid by the consumer where the latter decides not to conclude or perform the contract, without providing for the consumer to receive compensation of an equivalent amount from the seller or supplier where the latter is the party cancelling the contract; permitting the seller or supplier to retain sums paid by the consumer where the latter decides not to conclude or perform the contract, without providing for the consumer to receive compensation of an equivalent amount from the seller or supplier where the latter is the party cancelling the contract; 35

36. E. Unfair Contractual Terms Annex - An indicative and non-exhaustive list of the terms which may be regarded as unfair: Terms which have the object or effect of: requiring any consumer who fails to fulfil his obligation to pay a disproportionately high sum in compensation; requiring any consumer who fails to fulfil his obligation to pay a disproportionately high sum in compensation; authorizing the seller or supplier to dissolve the contract on a discretionary basis where the same facility is not granted to the consumer, or permitting the seller or supplier to retain the sums paid for services not yet supplied by him where it is the seller or supplier himself who dissolves the contract; authorizing the seller or supplier to dissolve the contract on a discretionary basis where the same facility is not granted to the consumer, or permitting the seller or supplier to retain the sums paid for services not yet supplied by him where it is the seller or supplier himself who dissolves the contract; 36

37. E. Unfair Contractual Terms Annex - An indicative and non-exhaustive list of the terms which may be regarded as unfair: Terms which have the object or effect of: enabling the seller or supplier to terminate a contract of indeterminate duration without reasonable notice except where there are serious grounds for doing so it is without hindrance to terms by which a supplier of financial services reserves the right to terminate unilaterally a contract of indeterminate duration without notice where there is a valid reason, provided that the supplier is required to inform the other contracting party or parties thereof immediately it does not apply to: transactions in transferable securities, financial instruments and other products or services, where the price is linked to fluctuations in a stock exchange quotation or index or a financial market rate that the seller or supplier does not control transactions in transferable securities, financial instruments and other products or services, where the price is linked to fluctuations in a stock exchange quotation or index or a financial market rate that the seller or supplier does not control contracts for the purchase or sale of foreign currency, traveller's cheques or international money orders denominated in foreign currency; contracts for the purchase or sale of foreign currency, traveller's cheques or international money orders denominated in foreign currency; 37

38. E. Unfair Contractual Terms Annex - An indicative and non-exhaustive list of the terms which may be regarded as unfair: Terms which have the object or effect of: enabling the seller or supplier to alter the terms of the contract unilaterally without a valid reason which is specified in the contract; it is without hindrance to terms under which a supplier of financial services reserves the right to alter: the rate of interest payable by the consumer or due to the latter, or the amount of other charges for financial services without notice where there is a valid reason, provided that the supplier is required to inform the other contracting party or parties thereof at the earliest opportunity and that the latter are free to dissolve the contract immediately the rate of interest payable by the consumer or due to the latter, or the amount of other charges for financial services without notice where there is a valid reason, provided that the supplier is required to inform the other contracting party or parties thereof at the earliest opportunity and that the latter are free to dissolve the contract immediately unilaterally the conditions of a contract of indeterminate duration, provided that he is required to inform the consumer with reasonable notice and that the consumer is free to dissolve the contract unilaterally the conditions of a contract of indeterminate duration, provided that he is required to inform the consumer with reasonable notice and that the consumer is free to dissolve the contract 38

39. E. Unfair Contractual Terms Annex - An indicative and non-exhaustive list of the terms which may be regarded as unfair: Terms which have the object or effect of: enabling the seller or supplier to alter the terms of the contract unilaterally without a valid reason which is specified in the contract; It does not apply to: transactions in transferable securities, financial instruments and other products or services where the price is linked to fluctuations in a stock exchange quotation or index or a financial market rate that the seller or supplier does not control; transactions in transferable securities, financial instruments and other products or services where the price is linked to fluctuations in a stock exchange quotation or index or a financial market rate that the seller or supplier does not control; contracts for the purchase or sale of foreign currency, traveller's cheques or international money orders denominated in foreign currency; contracts for the purchase or sale of foreign currency, traveller's cheques or international money orders denominated in foreign currency; 39

40. F. Consumer Credit Directive 2008/48/EC (a) “credit agreement”: an agreement whereby a creditor grants or promises to grant to a consumer credit an agreement whereby a creditor grants or promises to grant to a consumer credit in the form of a deferred payment, loan or other similar financial accommodation, except for agreements for the provision on a continuing basis of services or for the supply of goods of the same kind, where the consumer pays for such services or goods for the duration of their provision by means of instalments; in the form of a deferred payment, loan or other similar financial accommodation, except for agreements for the provision on a continuing basis of services or for the supply of goods of the same kind, where the consumer pays for such services or goods for the duration of their provision by means of instalments; (b) “overdraft facility”: an explicit credit agreement whereby a creditor makes available to a consumer funds which exceed the current balance in the consumer's current account; an explicit credit agreement whereby a creditor makes available to a consumer funds which exceed the current balance in the consumer's current account; (c) “overrunning”: a tacitly accepted overdraft whereby a creditor makes available to a consumer funds which exceed the current balance in the consumer's current account or the agreed overdraft facility; a tacitly accepted overdraft whereby a creditor makes available to a consumer funds which exceed the current balance in the consumer's current account or the agreed overdraft facility; 40

41. F. Consumer Credit Directive 2008/48/EC shall not apply to the following: credit agreements which are secured either by a mortgage or by another comparable security commonly used in a Member State on immovable property or secured by a right related to immovable property; credit agreements which are secured either by a mortgage or by another comparable security commonly used in a Member State on immovable property or secured by a right related to immovable property; credit agreements the purpose of which is to acquire or retain property rights in land or in an existing or projected building; credit agreements the purpose of which is to acquire or retain property rights in land or in an existing or projected building; credit agreements involving a total amount of credit less than EUR 200 or more than EUR 75000; credit agreements involving a total amount of credit less than EUR 200 or more than EUR 75000; hiring or leasing agreements where an obligation to purchase the object of the agreement is not laid down either by the agreement itself or by any separate agreement; such an obligation shall be deemed to exist if it is so decided unilaterally by the creditor; hiring or leasing agreements where an obligation to purchase the object of the agreement is not laid down either by the agreement itself or by any separate agreement; such an obligation shall be deemed to exist if it is so decided unilaterally by the creditor; credit agreements in the form of an overdraft facility and where the credit has to be repaid within one month; credit agreements in the form of an overdraft facility and where the credit has to be repaid within one month; 41

42. F. Consumer Credit Directive 2008/48/EC shall not apply to the following: credit agreements where the credit is granted free of interest and without any other charges and credit agreements under the terms of which the credit has to be repaid within three months and only insignificant charges are payable; credit agreements where the credit is granted free of interest and without any other charges and credit agreements under the terms of which the credit has to be repaid within three months and only insignificant charges are payable; credit agreements where the credit is granted by an employer to his employees as a secondary activity free of interest or at annual percentage rates of charge lower than those prevailing on the market and which are not offered to the public generally; credit agreements where the credit is granted by an employer to his employees as a secondary activity free of interest or at annual percentage rates of charge lower than those prevailing on the market and which are not offered to the public generally; credit agreements which are concluded with investment firms as defined in Article 4(1) of Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments or with credit institutions as defined in Article 4 of Directive 2006/48/EC for the purposes of allowing an investor to carry out a transaction relating to one or more of the instruments listed in Section C of Annex I to Directive 2004/39/EC, where the investment firm or credit institution granting the credit is involved in such transaction; credit agreements which are concluded with investment firms as defined in Article 4(1) of Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments or with credit institutions as defined in Article 4 of Directive 2006/48/EC for the purposes of allowing an investor to carry out a transaction relating to one or more of the instruments listed in Section C of Annex I to Directive 2004/39/EC, where the investment firm or credit institution granting the credit is involved in such transaction; 42

43. F. Consumer Credit “credit intermediary” means: “credit intermediary” means: a natural or legal person a natural or legal person who is not acting as a creditor and who is not acting as a creditor and who, in the course of his trade, business or profession, for a fee, which may take a pecuniary form or any other agreed form of financial consideration: who, in the course of his trade, business or profession, for a fee, which may take a pecuniary form or any other agreed form of financial consideration: (i) presents or offers credit agreements to consumers; (ii) assists consumers by undertaking preparatory work in respect of credit agreements other than as referred to in (i); or (iii) concludes credit agreements with consumers on behalf of the creditor; 43

44. F. Consumer Credit Any advertising: concerning credit agreements concerning credit agreements which indicates an interest rate or any figures relating to the cost of the credit to the consumer which indicates an interest rate or any figures relating to the cost of the credit to the consumer shall include standard information in accordance with article 4 of the Directive shall include standard information in accordance with article 4 of the Directive 44

45. F. Consumer Credit Advertising: The standard information shall specify in a clear, concise and prominent way by means of a representative example: the borrowing rate, fixed or variable or both, together with particulars of any charges included in the total cost of the credit to the consumer; the borrowing rate, fixed or variable or both, together with particulars of any charges included in the total cost of the credit to the consumer; the total amount of credit; the total amount of credit; the annual percentage rate of charge; the annual percentage rate of charge; if applicable, the duration of the credit agreement; if applicable, the duration of the credit agreement; in the case of a credit in the form of deferred payment for a specific good or service, the cash price and the amount of any advance payment; and in the case of a credit in the form of deferred payment for a specific good or service, the cash price and the amount of any advance payment; and if applicable, the total amount payable by the consumer and the amount of the instalments. if applicable, the total amount payable by the consumer and the amount of the instalments. 45

46. F. Consumer Credit In good time before the consumer is bound by any credit agreement or offer, In good time before the consumer is bound by any credit agreement or offer, the creditor and, where applicable, the credit intermediary shall, the creditor and, where applicable, the credit intermediary shall, on the basis of the credit terms and conditions offered by the creditor and, if applicable, the preferences expressed and information supplied by the consumer, on the basis of the credit terms and conditions offered by the creditor and, if applicable, the preferences expressed and information supplied by the consumer, provide the consumer with the information needed to compare different offers in order to take an informed decision on whether to conclude a credit agreement. provide the consumer with the information needed to compare different offers in order to take an informed decision on whether to conclude a credit agreement. Such information, on paper or on another durable medium, shall be provided by means of the Standard European Consumer Credit Information Such information, on paper or on another durable medium, shall be provided by means of the Standard European Consumer Credit Information 46

47. F. Consumer Credit STANDARD EUROPEAN CONSUMER CREDIT INFORMATION Identity and contact details of the creditor/credit intermediary Identity and contact details of the creditor/credit intermediary Description of the main features of the credit product (such as the type of credit, the total amount of credit, the conditions governing the drawdown (how and when you will obtain the money), the duration of the credit agreement, instalments and, where appropriate, the order in which instalments will be allocated) Description of the main features of the credit product (such as the type of credit, the total amount of credit, the conditions governing the drawdown (how and when you will obtain the money), the duration of the credit agreement, instalments and, where appropriate, the order in which instalments will be allocated) Costs of the credit (such as the borrowing rate or, if applicable, different borrowing rates which apply to the credit agreement, with the index or reference rate applicable to the initial borrowing rate),periods, Annual Percentage Rate of Charge (APR) Costs of the credit (such as the borrowing rate or, if applicable, different borrowing rates which apply to the credit agreement, with the index or reference rate applicable to the initial borrowing rate),periods, Annual Percentage Rate of Charge (APR) Other important legal aspects (such as the right of withdrawal and the right of early repayment) Other important legal aspects (such as the right of withdrawal and the right of early repayment) Additional information in the case of distance marketing of financial services Additional information in the case of distance marketing of financial services 47

48. F. Consumer Credit Right of withdrawal The consumer shall have a period of 14 calendar days in which to withdraw from the credit agreement without giving any reason. The consumer shall have a period of 14 calendar days in which to withdraw from the credit agreement without giving any reason. That period of withdrawal shall begin: either from the day of the conclusion of the credit agreement, or either from the day of the conclusion of the credit agreement, or from the day on which the consumer receives the contractual terms and conditions and information in accordance with Article 10, if that day is later than the date referred to above from the day on which the consumer receives the contractual terms and conditions and information in accordance with Article 10, if that day is later than the date referred to above 48

49. F. Consumer Credit Right of withdrawal If the consumer exercises his right of withdrawal, he shall: in order to give effect to the withdrawal before the expiry of the deadline of 14 days, notify this to the creditor in line with the information given by the creditor pursuant to Article 10(2)(p) by means which can be proven in accordance with national law. The deadline shall be deemed to have been met if that notification, if it is on paper or on another durable medium that is available and accessible to the creditor, is dispatched before the deadline expires; and in order to give effect to the withdrawal before the expiry of the deadline of 14 days, notify this to the creditor in line with the information given by the creditor pursuant to Article 10(2)(p) by means which can be proven in accordance with national law. The deadline shall be deemed to have been met if that notification, if it is on paper or on another durable medium that is available and accessible to the creditor, is dispatched before the deadline expires; and pay to the creditor the capital and the interest accrued thereon from the date the credit was drawn down until the date the capital is repaid, without any undue delay and no later than 30 calendar days after the despatch by him to the creditor of notification of the withdrawal. The interest shall be calculated on the basis of the agreed borrowing rate. The creditor shall not be entitled to any other compensation from the consumer in the event of withdrawal, except compensation for any non-returnable charges paid by the creditor to any public administrative body pay to the creditor the capital and the interest accrued thereon from the date the credit was drawn down until the date the capital is repaid, without any undue delay and no later than 30 calendar days after the despatch by him to the creditor of notification of the withdrawal. The interest shall be calculated on the basis of the agreed borrowing rate. The creditor shall not be entitled to any other compensation from the consumer in the event of withdrawal, except compensation for any non-returnable charges paid by the creditor to any public administrative body 49

50. F. Consumer Credit Right of early repayment The consumer shall be entitled at any time to discharge fully or partially his obligations under a credit agreement. In such cases, he shall be entitled to a reduction in the total cost of the credit, such reduction consisting of the interest and the costs for the remaining duration of the contract. The consumer shall be entitled at any time to discharge fully or partially his obligations under a credit agreement. In such cases, he shall be entitled to a reduction in the total cost of the credit, such reduction consisting of the interest and the costs for the remaining duration of the contract. In the event of early repayment of credit the creditor shall be entitled to fair and objectively justified compensation for possible costs directly linked to early repayment of credit provided that the early repayment falls within a period for which the borrowing rate is fixed. In the event of early repayment of credit the creditor shall be entitled to fair and objectively justified compensation for possible costs directly linked to early repayment of credit provided that the early repayment falls within a period for which the borrowing rate is fixed. Such compensation: Such compensation: may not exceed 1% of the amount of credit repaid early, if the period of time between the early repayment and the agreed termination of the credit agreement exceeds one year. may not exceed 1% of the amount of credit repaid early, if the period of time between the early repayment and the agreed termination of the credit agreement exceeds one year. may not exceed 0,5% of the amount of credit repaid early if the period does not exceed one year may not exceed 0,5% of the amount of credit repaid early if the period does not exceed one year 50

51. F. Consumer Credit Right of early repayment Compensation for early repayment shall not be claimed: if the repayment has been made under an insurance contract intended to provide a credit repayment guarantee; if the repayment has been made under an insurance contract intended to provide a credit repayment guarantee; in the case of overdraft facilities; or in the case of overdraft facilities; or if the repayment falls within a period for which the borrowing rate is not fixed. if the repayment falls within a period for which the borrowing rate is not fixed. Any compensation shall not exceed the amount of interest the consumer would have paid during the period between the early repayment and the agreed date of termination of the credit agreement. 51

52. F. Consumer Credit Right of early repayment Member States may provide that: (a) such compensation may be claimed by the creditor only on condition that the amount of the early repayment exceeds the threshold defined by national law. That threshold shall not exceed EUR 10000 within any period of 12 months; (b) the creditor may exceptionally claim higher compensation if he can prove that the loss he suffered from early repayment exceeds the amount determined under paragraph 2. If the compensation claimed by the creditor exceeds the loss actually suffered, the consumer may claim a corresponding reduction. In this case, the loss shall consist of the difference between the initially agreed interest rate and the interest rate at which the creditor can lend out the amount repaid early on the market at the time of early repayment, and shall take into account the impact of early repayment on administrative costs. 52

53. F. Consumer Credit “linked credit agreement” means a credit agreement where: the credit in question serves exclusively to finance an agreement for the supply of specific goods or the provision of a specific service, an the credit in question serves exclusively to finance an agreement for the supply of specific goods or the provision of a specific service, an those two agreements form, from an objective point of view, a commercial unit; a commercial unit shall be deemed to exist where: those two agreements form, from an objective point of view, a commercial unit; a commercial unit shall be deemed to exist where: the supplier or service provider himself finances the credit for the consumer or, the supplier or service provider himself finances the credit for the consumer or, if it is financed by a third party, where the creditor uses the services of the supplier or service provider in connection with the conclusion or preparation of the credit agreement, or if it is financed by a third party, where the creditor uses the services of the supplier or service provider in connection with the conclusion or preparation of the credit agreement, or where the specific goods or the provision of a specific service are explicitly specified in the credit agreement. where the specific goods or the provision of a specific service are explicitly specified in the credit agreement. 53

54. F. Consumer Credit “linked credit agreement” Where the consumer has exercised a right of withdrawal, based on Community law, concerning a contract for the supply of goods or services, he shall no longer be bound by a linked credit agreement. Where the consumer has exercised a right of withdrawal, based on Community law, concerning a contract for the supply of goods or services, he shall no longer be bound by a linked credit agreement. Where the goods or services covered by a linked credit agreement: Where the goods or services covered by a linked credit agreement: are not supplied, or are not supplied, or are supplied only in part, or are supplied only in part, or are not in conformity with the contract for the supply thereof, are not in conformity with the contract for the supply thereof, the consumer shall have the right to pursue remedies against the creditor if the consumer has pursued his remedies against the supplier but has failed to obtain the satisfaction to which he is entitled according to the law or the contract for the supply of goods or services. Member States shall determine to what extent and under what conditions those remedies shall be exercisable the consumer shall have the right to pursue remedies against the creditor if the consumer has pursued his remedies against the supplier but has failed to obtain the satisfaction to which he is entitled according to the law or the contract for the supply of goods or services. Member States shall determine to what extent and under what conditions those remedies shall be exercisable 54

55. F. Consumer Credit The principle of responsible lending Obligation to assess the creditworthiness of the consumer before the conclusion of the credit agreement, before the conclusion of the credit agreement, the creditor assesses the consumer's creditworthiness on the basis of sufficient information, the creditor assesses the consumer's creditworthiness on the basis of sufficient information, where appropriate obtained from the consumer and, where necessary, on the basis of a consultation of the relevant database where appropriate obtained from the consumer and, where necessary, on the basis of a consultation of the relevant database Member States shall ensure that, if the parties agree to change the total amount of credit after the conclusion of the credit agreement, the creditor updates the financial information at his disposal concerning the consumer and assesses the consumer's creditworthiness before any significant increase in the total amount of credit. 55

56. F. Consumer Credit “annual percentage rate of charge” means the total cost of the credit to the consumer, expressed as an annual percentage of the total amount of credit “annual percentage rate of charge” means the total cost of the credit to the consumer, expressed as an annual percentage of the total amount of credit “total cost of the credit to the consumer” means all the costs, including: “total cost of the credit to the consumer” means all the costs, including: interest, interest, commissions, commissions, taxes and taxes and any other kind of fees which the consumer is required to pay in connection with the credit agreement and which are known to the creditor, except for notarial costs; costs in respect of ancillary services relating to the credit agreement, in particular insurance premiums, are also included if, in addition, the conclusion of a service contract is compulsory in order to obtain the credit or to obtain it on the terms and conditions marketed; any other kind of fees which the consumer is required to pay in connection with the credit agreement and which are known to the creditor, except for notarial costs; costs in respect of ancillary services relating to the credit agreement, in particular insurance premiums, are also included if, in addition, the conclusion of a service contract is compulsory in order to obtain the credit or to obtain it on the terms and conditions marketed; “total amount payable by the consumer” means the sum of the total amount of the credit and the total cost of the credit to the consumer; “total amount payable by the consumer” means the sum of the total amount of the credit and the total cost of the credit to the consumer; 56

57. G. Mortgage Credit Mortgage A mortgage is a loan used to purchase a fixed asset such as land or buildings, with the loan secured against the asset. In most cases this will be the borrower's home A mortgage is a loan used to purchase a fixed asset such as land or buildings, with the loan secured against the asset. In most cases this will be the borrower's home A standard mortgage is offered as a fixed term agreement. In the UK this is commonly 20 or 25 years and in the US 15 or 30 years. When a mortgage has been fully repaid it is said to have been redeemed. A standard mortgage is offered as a fixed term agreement. In the UK this is commonly 20 or 25 years and in the US 15 or 30 years. When a mortgage has been fully repaid it is said to have been redeemed. 57

58. G. Mortgage Credit Mortgage With a repayment mortgage the borrower makes fixed repayments at regular intervals, usually each month or year. Repayments cover both interest and capital, resulting in the debt being paid off by the end of the agreement. In banking circles a repayment mortgage is often referred to as an amortizing mortgage With a repayment mortgage the borrower makes fixed repayments at regular intervals, usually each month or year. Repayments cover both interest and capital, resulting in the debt being paid off by the end of the agreement. In banking circles a repayment mortgage is often referred to as an amortizing mortgage With an interest only mortgage (some­times referred to as a non- amortizing or balloon mortgage) payments only cover interest. At the end of the agreement the borrower must repay the original debt in full. This is usually via an investment trust or endowment policy that runs in parallel with the mortgage, but which is technically a separate financial product and can be cashed in or sold independently With an interest only mortgage (some­times referred to as a non- amortizing or balloon mortgage) payments only cover interest. At the end of the agreement the borrower must repay the original debt in full. This is usually via an investment trust or endowment policy that runs in parallel with the mortgage, but which is technically a separate financial product and can be cashed in or sold independently 58

59. G. Mortgage Credit Mortgage In the US fixed rate mortgages are the norm, with a single interest rate applying for a period of ten years or more, and possibly for the entire life of the mortgage In the US fixed rate mortgages are the norm, with a single interest rate applying for a period of ten years or more, and possibly for the entire life of the mortgage In the UK variable rate mortgages and short term fixed rate mortgages, of between two and seven years, are prevalent. A variable rate means that the interest rate can vary over the life of the loan, resulting in changes to the payments made by the borrower. There are no fixed criteria as to when or how a lender varies their interest rates, but most changes track the base rate set by the central bank of the country in which the mortgage is granted. For example, most UK mortgage rates remain between 1 and 2 percent above the base rate set by The Bank of England. In the US the equivalent body is The Federal Reserve Board and within the Euro zone, The Central European Bank In the UK variable rate mortgages and short term fixed rate mortgages, of between two and seven years, are prevalent. A variable rate means that the interest rate can vary over the life of the loan, resulting in changes to the payments made by the borrower. There are no fixed criteria as to when or how a lender varies their interest rates, but most changes track the base rate set by the central bank of the country in which the mortgage is granted. For example, most UK mortgage rates remain between 1 and 2 percent above the base rate set by The Bank of England. In the US the equivalent body is The Federal Reserve Board and within the Euro zone, The Central European Bank 59

60. G. Mortgage Credit Directive 2014/17/EU It applies to:  credit agreements which are secured either by a mortgage or by another comparable security commonly used in a Member State on residential immovable property or secured by a right related to residential immovable property; And  credit agreements the purpose of which is to acquire or retain property rights in land or in an existing or projected building 60

61. G. Mortgage Credit Obligation to assess the creditworthiness of the consumer Member States shall ensure that:  before concluding a credit agreement, the creditor makes a thorough assessment of the consumer’s creditworthiness. That assessment shall take appropriate account of factors relevant to verifying the prospect of the consumer to meet his obligations under the credit agreement, and  the procedures and information on which the assessment is based are established, documented and maintained. The assessment of creditworthiness shall not rely predominantly on the value of the residential immovable property exceeding the amount of the credit or the assumption that the residential immovable property will increase in value unless the purpose of the credit agreement is to construct or renovate the residential immovable property. 61

62. G. Mortgage Credit Obligation to assess the creditworthiness of the consumer Member States shall ensure that: (a) the creditor only makes the credit available to the consumer where the result of the creditworthiness assessment indicates that the obligations resulting from the credit agreement are likely to be met in the manner required under that agreement; (a) the creditor only makes the credit available to the consumer where the result of the creditworthiness assessment indicates that the obligations resulting from the credit agreement are likely to be met in the manner required under that agreement; (b) in accordance with Article 10 of Directive 95/46/EC, the creditor informs the consumer in advance that a database is to be consulted; (c) where the credit application is rejected the creditor informs the consumer without delay of the rejection and, where applicable, that the decision is based on automated processing of data. Where the rejection is based on the result of the database consultation, the creditor shall inform the consumer of the result of such consultation 62

63. G. Mortgage Credit Obligation to assess the creditworthiness of the consumer  The assessment of creditworthiness shall be carried out on the basis of information on the consumer’s income and expenses and other financial and economic circumstances which is necessary, sufficient and proportionate. The information shall be obtained by the creditor from relevant internal or external sources, including the consumer  Member States shall have measures in place to ensure that consumers are aware of the need to provide correct information and that such information is as complete as necessary to conduct a proper creditworthiness assessment  The creditor shall warn the consumer that, where the creditor is unable to carry out an assessment of creditworthiness because the consumer chooses not to provide the information or verification necessary for an assessment of creditworthiness, the credit cannot be granted 63

64. G. Mortgage Credit Financial education of consumers  Member States shall promote measures that support the education of consumers in relation to responsible borrowing and debt management, in particular in relation to mortgage credit agreements.  Clear and general information on the credit granting process is necessary in order to guide consumers, especially those who take out a mortgage credit for the first time. Information regarding the guidance that consumer organisations and national authorities may provide to consumers, is also necessary. 64

65. G. Mortgage Credit Arrears and foreclosure Member States:  shall adopt measures to encourage creditors to exercise reasonable forbearance before foreclosure proceedings are initiated,  may require that, where the creditor is permitted to define and impose charges on the consumer arising from the default, those charges are no greater than is necessary to compensate the creditor for costs it has incurred as a result of the default,  may allow creditors to impose additional charges on the consumer in the event of default. In that case they shall place a cap on those charges. 65

66. G. Mortgage Credit Conduct of business obligations when providing credit to consumers Member States shall require that when:  manufacturing credit products or granting,  intermediating or providing advisory services on credit and, where appropriate, ancillary services to consumers  or when executing a credit agreement, the creditor acts honestly, fairly, transparently and professionally, taking account of the rights and interests of the consumers. In relation to the granting, intermediating or provision of advisory services on credit the activities shall be based on information about the consumer’s circumstances and any specific requirement made known by a consumer and on reasonable assumptions about risks to the consumer’s situation over the term of the credit agreement. 66

67. G. Mortgage Credit Conduct of business obligations when providing credit to consumers Member States shall ensure that, when establishing and applying remuneration policies for staff responsible for the assessment of creditworthiness, creditors comply with the following principles: (a) the remuneration policy is consistent with and promotes sound and effective risk management and does not encourage risk-taking that exceeds the level of tolerated risk of the creditor; (b) the remuneration policy is in line with the business strategy, objectives, values and long-term interests of the creditor, and incorporates measures to avoid conflicts of interest, in particular by providing that remuneration is not contingent on the number or proportion of applications accepted. 67

68. G. Mortgage Credit Knowledge and competence requirements for staff Member States shall ensure that:  creditors, credit intermediaries and appointed representatives  require their staff to possess and to keep up-to-date an appropriate level of knowledge and competence  in relation to the manufacturing, the offering or granting of credit agreements, the carrying out of credit intermediation activities or the provision of advisory services 68

69. G. Mortgage Credit Knowledge and competence requirements for staff The minimum knowledge and competence requirements for creditors’, credit intermediaries’ and appointed representatives’ staff need to include at least:  appropriate knowledge of credit products and the ancillary services typically offered with them;  appropriate knowledge of the laws related to the credit agreements for consumers, in particular consumer protection;  appropriate knowledge and understanding of the immovable property purchasing process;  appropriate knowledge of security valuation; 69

70. G. Mortgage Credit Knowledge and competence requirements for staff The minimum knowledge and competence requirements for creditors’, credit intermediaries’ and appointed representatives’ staff need to include at least (cont.):  appropriate knowledge of organisation and functioning of land registers;  appropriate knowledge of the market in the relevant Member State;  appropriate knowledge of business ethics standards;  appropriate knowledge of the consumer’s creditworthiness assessment process or where applicable, competence in assessing consumers’ creditworthiness;  appropriate level of financial and economic competency 70