6.1 Definition and Scope

This regulation addresses certain aspects of marketing and providing credit to consumers in the EU (Art 1), notably the requirement to provide sufficient information before a contract is agreed, including an annual percentage rate of charges (APR). Consumers in this context are natural persons who are acting for purposes which are outside their trade, business, or profession (Art 3).

In the context of this regulation, creditors are defined as natural or legal persons who grant credit in the course of their trade, business, or profession (Art 3), which is interesting because on the face of it this definition might not include some lenders on peer‐to‐peer lending platforms. The platforms themselves, however, almost certainly fall under the definition of credit intermediary, which means that the provisions here apply to them.

There are important exceptions in terms of credit agreements where this regulation does not apply, for example most kinds of secured credit, including mortgages, loans below €200 or above €75k, leasing agreements without obligation to purchase the asset, some overdraft facilities, some cost‐free or subsidised credit agreements, margin loans, and loans extended by pawnbrokers (Art 2).

6.2 Information to Be Provided Before Concluding an Agreement

Advertisements. Whenever an advertisement of a credit product contains any figures relating to the cost of credit to the consumer it must also contain a certain set of standard information. This set is as follows (Art 4):

• borrowing rate and any charges included
• total amount and duration of credit
• APR (in most cases)
• total amount payable.

In the case of instalment purchases, the total amount of instalments must also be indicated, as must the cash price be if the same product or service were not being bought under a credit agreement.

Pre‐contractual information. Before a contract is concluded, the creditor and/or the intermediary have to 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. The information must be provided on paper or another durable medium, the set is defined in detail in the regulation (Art 5.1, or 6.1 for overdraft facilities), and it must be provided by means of the Standard European Consumer Credit Information form (SECCI form) (Annex II). There can be no other information provided on that form, but additional information can be provided in a separate annexed document (Arts 5, 6).

An exception is the case where an agreement has been concluded at the consumer's request using a means of distance communication which does not enable the information to be provided in which case the SECCI form has to be provided immediately after the conclusion of the credit agreement (Art 5.3).

Another exception is suppliers of goods or services acting as credit intermediaries in an ancillary capacity (Art 7).

6.3 Credit Assessment and Credit Databases

Before extending credit—and when the total amount of credit is being changed subsequently, or the creditor obtains additional information impacting the creditworthiness of the consumer—there must be a credit assessment. This assessment must be at least based on the data provided by the consumer, and possibly on consultation of relevant databases (Art 8). If a credit application has been rejected based on information obtained from a database, the creditor must inform the consumer immediately and free of charge of the result of the consultation, and the particulars of the database consulted. Databases must be available for cross‐border access on a non‐discriminatory basis (Art 9).

6.4 Information to Be Provided with Agreements

When entering into a credit agreement, all contracting parties must have received a copy of the agreement on paper or another durable medium. This agreement must contain a certain set of information (Art 10.2, or 10.5 for overdraft facilities; also 10.3‐4). Consumers must be informed of changes in borrowing rates before the change enters into force, except in the case where the rate is based on external reference rates, in which case a reporting period can be agreed (Art 11). In the case of overdraft facilities, consumers must be provided with period statements containing a specified set of information (Art 12). If accounts overrun—ie overdrafts are granted without a specific agreement in place—similar terms apply (Art 18).

6.5 Consumer Rights Under Credit Agreements

Withdrawal. Consumers have the right to withdraw within 14 days from the later of where they enter into a contract or receive the full documentation. In this case they must repay the funds received, plus any interest due, within 30 days of cancellation (Art 14).

Cancellation of Open‐Ended Agreements. Unless agreed otherwise, open‐ended credit agreements can be cancelled by the consumer without notice, and by the creditor with two months' notice. If a consumer notice period is agreed, it cannot be longer than one month. In any case, cancellation must be free of charge (Art 13).

Linked Credit Agreements. If a credit agreement is linked to the purchase of goods or provision of services, and if the consumers exercise their right of withdrawal from this contract, they are no longer bound by the linked credit contract either (Art 15). Also, where a consumer has a right to pursue remedies against a provider of goods or services because those have not been supplied, or only supplied in part, or are not in conformity with the contract, then the consumer has the right to pursue remedies against the creditor. In some jurisdictions this requires that the consumer has unsuccessfully pursued his remedies against the supplier first. In others, creditors are joint and severally liable right away (Art 15).

Early Repayment. Consumers are always allowed to repay credit early. If the repayment is during a time where the borrowing rate under the agreement is fixed, the creditor is in some cases entitled to fair and objectively justified compensation. This compensation, however, cannot be more than 1% of the repaid amount, and not more than 0.5% if the remaining term of the credit agreement is less than a year (Art 16).

6.6 Annual Percentage Rate of Charge (APR)

The APR figure is to be computed using the formula in Annex I as the discount rate that makes the net present value of all cash flows—including relevant charges—of the product zero. For products where those cash flows depend on consumer choice, key assumptions are given, eg maximum possible drawdown at the earliest possible date, lowest possible repayment dates. Note that in the presence of fixed charges those assumptions have a tendency to lower the APR, ie customers that borrow less or repay earlier might actually face higher APRs.