A new directive on consumer credit
The new European Consumer Credit Directive ("CCD2") was published in the Official Journal of the European Union ("EU") on 30 October 2023. Its primary objectives are to enhance consumer protection and further harmonise the European credit market. The CCD2 must be implemented by EU Member States no later than 20 November 2025.
A first version with significant impact
The 1st European Consumer Credit Directive ("CCD1"), introduced in 2008 and transposed into French law in 2010 as the "Lagarde Law," brought about major changes to consumer credit practices, notably around consumer protection and the fight against over-indebtedness. Now, 15 years later, the EU has revised it to offer even stronger protections and address newer credit models that have emerged.
The CCD2 expands the scope of application and sets new obligations on lenders, aimed at eliminating certain abusive practices. Its coverage will now extend to all non-mortgage loans up to €100,000, including:
- Overdrafts and similar credit agreements.
- Lease agreements with purchase options.
- Deferred payment schemes such as BNPL (Buy Now Pay Later).
Key provisions introduced by CCD2, designed to protect consumers from excessive debt, include:
- Stricter measures to cap lending rates and associated costs.
- Tighter advertising rules to prevent mis-selling.
- Financial advice and support services for consumers in financial hardship.
Enhanced solvency assessments and new calculation requirements
A major element of CCD2 is its strengthened requirements for creditworthiness assessments. These assessments must now be based on "relevant and accurate information regarding the consumer's income and expenses," which could include "proof of income, financial assets and liabilities, or other financial commitments."
Currently, the French Lagarde Law only mandates consultation of the national credit incident register (FICP) and proof of identity, address, and income for loans above €3,000. This is set to change. Once CCD2 is incorporated into local law, lenders may be required to gather detailed consumer expense data, alongside income information—a significant challenge in France, where no central credit register or credit bureau exists.
Open Banking: A reliable solution for new requirements
Bank account data, gathered through Open Banking, is now seen as the most exhaustive and reliable way to collect and analyse consumer income and expenses. This data provides everything needed for a solvency check—income, expenses, loan payments, banking fees, rejected payments, and even risk signals like account seizures.
Introduced through the 2018 European Payment Services Directive (PSD2), Open Banking allows secure, consumer-consented access to bank account data, enhancing the consumer credit application process. Open Banking enables third parties to retrieve account holder names, IBANs, and transaction histories (with at least 90 days’ worth of data).
Supplemented by categorisation and enrichment tools, Open Banking is a powerful response to CCD2's requirements. It not only satisfies the regulatory need but also helps combat over-indebtedness and document fraud, with real-time, reliable data sourced directly from the bank.
Though Open Banking for credit scoring is not new — used by firms like Algoan — its adoption by credit institutions has been slow. However, the advent of CCD2 is likely to drive its uptake, bringing new players and credit types into the regulatory fold, while increasing demand for seamless, frictionless customer experiences.
Interested in learning more about CCD2and the best strategies to navigate these new regulations? Contact our expert Marine Lecomte by clicking here.