A credit agreement is a contract concluded between a lender (the creditor) and a consumer where the creditor agrees or commits to grant a credit to the consumer in the form of a deferred payment, a loan or any other similar financial accommodation.
This only applies to contracts whose amount is between EUR 200 and EUR 75,000.
It applies to professional lenders, and in this case to credit intermediaries as well as to the consumer who concludes a consumer credit agreement.
Examples of consumer credit agreements:
- a loan granted for the purchase of goods (car, boat, etc.);
- a loan to finance a service (holiday trip, home renovation).
Only contracts whose amount is between EUR 200 and EUR 75,000 are concerned.
Certain contracts however, are excluded from the rules on consumer credit agreements, such as:
- credit agreements for the acquisition of a home or building land and who are secured by real estate (mortgage);
- credit agreements granted in the form of an overdraft facility to be reimbursed within a month, etc.
Before signing a credit agreement, the creditor or the credit intermediary must provide the consumer with certain information, based on a specific form ("Standard European Consumer Credit Information Form"), in paper format or on any other durable medium (email, USB stick, CD, etc.), and namely the following:
- the type of credit offered;
- the total amount of credit and the conditions governing the drawdown;
- the duration of the contract;
- the interest rate;
- the existence, or not, of a right of withdrawal, etc.
See the full list of information to be provided to the consumer by the creditor or credit intermediary before concluding the credit agreement.
When the credit is offered in a sales location, the creditor must ensure that the consumer receives complete and appropriate information in said location, under conditions which guarantee the confidentiality of the exchange of information.
Information other than the mandatory information which the creditor wishes to provide to the consumer may be grouped in a document which can be appended to the "Standard European Consumer Credit Information" form.
For simplification purposes, the following example is limited to contracts concluded by phone.
If the creditor calls the consumer, subject to prior consent, to offer a distance contract for financial services, the creditor must, at that moment, at least indicate the main characteristics of the financial service (total amount of credit and conditions governing the drawdown, interest rate, the amount, number and frequency of payments, the description of the good or service and its cash price if the credit is granted in the form of a deferred payment for a good or service).
Consumers are entitled to request a free copy of the draft credit agreement, unless the creditor already knows that he does not intend to conclude a contract with the consumer at the time of the request.
The creditor, or, where applicable, the credit intermediary, must also provide the consumer with enough information to enable the latter to compare the different credit agreements available and to determine whether the credit agreement offered is adapted to his needs and financial situation. They must also inform the consumer about the risks and consequences of default in payment.
Suppliers of goods or services who act as a credit intermediary on an ancillary basis are not bound by precontractual obligations in terms of information.
The creditor must, before concluding a contract, verify the consumer's creditworthiness. Consumers are required to communicate all necessary information to the creditor, such as current financial commitments (loans) and regular income (salaries, pension, etc.).
If the consumer resides in another Member State, the creditor can consult, where necessary, the relevant databases in the Member State where the consumer has his usual place of residence.
Conclusion of the contract
The credit agreement is drafted on paper or on any other durable medium and each party receives a signed copy.
Various information must be provided in the contract, such as:
- the type of credit;
- the duration of the credit agreement;
- the total amount of credit and the conditions governing the drawdown;
- the interest rate;
- where applicable, the depreciation table.
See the full list of information to be provided in the consumer credit agreement.
In the case of a credit agreement under which payments made by the consumer do not give rise to an immediate corresponding amortization of the total amount of credit, the contract shall include a clear and concise statement that such credit agreements do not provide for a guarantee of repayment of the total amount of credit drawn down under the credit agreement, unless such a guarantee is given.
Modification of the borrowing rate
Consumers must be informed of any change in the borrowing rate (interest rate) before the change enters into force. They must be informed on any durable medium.
The amount of the payments after the new rate has entered into force as well as the number or frequency of the payments must be indicated.
If the change in the borrowing rate is caused by a change in the reference rate, the consumer and the creditor may agree that the consumer is to receive periodical information on changes in the borrowing rate. The reference rate is made publicly available by appropriate means and is also kept available in the premises of the creditor.
Right of withdrawal
Exercising the right of withdrawal
Consumers have 14 calendar days in which to withdraw from the credit agreement. They may inform the creditor in writing or orally that they exercise their right of withdrawal. Consumers do not need to motivate their decision to withdraw from the credit agreement, i.e. they do not need to give any reason why they have decided to withdraw.
However, they must comply with the rules governing the right of withdrawal as indicated by the creditor.
As the consumers have to provide proof of their decision to withdraw, it is recommended to exercise said right in writing, preferably by registered mail with acknowledgement of receipt.
The period of withdrawal shall begin:
- either from the day the credit agreement is concluded;
- or from the day on which the consumer receives the contractual terms and conditions of the credit agreement or the information to be stated in the credit agreement if that day is later than the date on which the credit agreement is concluded.
The withdrawal only takes effect if it is sent to the creditor within the 14-day deadline.
Consequences for the credit agreement
A withdrawal from the contract means that the credit agreement is automatically terminated and is deemed to never have existed.
The consumer has to repay to the creditor the capital already drawn down and the interest accrued thereon no later than 30 days after the dispatch to the creditor of the notification of withdrawal. In the event of non-payment within 30 days, the consumer becomes subject to late interest payments at the legal rate. The creditor shall not be entitled to any other compensation from the consumer, except compensation for any non-returnable charges and amounts paid by the creditor to any public administrative body.
The withdrawal also entails the termination of all accessory contracts (e.g. insurance policy).
At any moment, the consumer can undertake early repayment of the credit agreement, whether in part or in full. Consumers are then entitled to a reduction of the total cost of the credit which corresponds to the interests and charges due for the remaining term of the contract.
They must indicate their intention to repay the credit to the creditor on paper or on any other durable medium.
As soon as the creditor has been informed about the consumer's intention, he provides the consumer with the precise amount of the reduction of the cost of the credit. In this case, the creditor also informs the consumer about the amount of the compensation due to early repayment.
The creditor's compensation
In the case of early repayment, the consumer may become subject to the payment of a compensation to the creditor, provided that:
- the amount of the early repayment exceeds EUR 10,000 during a year; and
- that the repayment occurs at a time where the borrowing rate is fixed.
No compensation is due if the repayment was made under an insurance contract intended to provide a credit repayment guarantee or in the case of overdraft facilities or if the repayment falls within a period for which the borrowing rate is not fixed.
The amount of the 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;
- 0,5 % of the amount of credit repaid early if the period does not exceed one year.
The creditor may exceptionally claim higher compensation if he can prove that the loss he suffered from early repayment exceeds the threshold defined by law. If the compensation claimed by the creditor exceeds the loss actually suffered, the consumer may claim a corresponding reduction.
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.
Assignment of rights
In the event of assignment to a third party of the creditor's rights under a credit agreement or the agreement itself, the consumer shall be entitled to plead against the assignee any defense which was available to him against the original creditor, including a right to compensation (set-off) where the latter is foreseen in the contract and permitted by law.
The consumer shall be informed of the assignment except where the original creditor, by agreement with the assignee, continues to service the credit vis-à-vis the consumer.
In the case of an agreement to open a current account, the creditor must regularly inform the consumer on paper or on another durable medium about the evolution of:
- the borrowing rate and the related conditions;
- any reference rate applicable to the borrowing rate;
- any charges or changes to these interest rates;
- any charges to be paid by the consumer;
- the conditions under which these charges may be changed.
In the event of a significant overrunning exceeding a period of one month, the creditor shall inform the consumer without delay, on paper or on another durable medium:
- of the overrunning and its amount;
- of the borrowing rate;
- of any penalties, charges or interest on arrears applicable.
If the overrunning exceeds a period of 3 months, the creditor shall offer the consumer, without delay, another type of credit agreement.
Termination of open-end credit agreements
The consumer may effect standard termination of an open-end credit agreement free of charge at any time unless the parties have agreed on a period of notice. Such a period may not exceed one month. If agreed in the credit agreement, the creditor may effect standard termination of an open-end credit agreement by giving the consumer at least two months' notice.
If agreed in the credit agreement, the creditor may, for objectively justified reasons, terminate the consumer's right to draw down on an open-end credit agreement. The creditor shall inform the consumer of the termination and the reasons for it on paper or on another durable medium, where possible before the termination and at the latest immediately thereafter, unless the provision of such information is prohibited by law or is contrary to objectives of public policy or public security (suspicion of money laundering, etc.).
Failure to supply the goods or services in terms of linked credit agreements
The consumer shall have the right to pursue remedies against the creditor if the consumer has pursued his remedies against the supplier of goods or services but has failed to obtain the satisfaction to which he is entitled, in the event where the goods or services:
- are not supplied;
- are supplied only in part; or
- are not in conformity with the contract for the supply of goods or services.
In the event of doorstep selling, the creditor must respect the consumer's choice to refuse doorstep selling (placing of a sticker or distinctive sign) and must comply with the consumer's request to leave the premises and/or not to come back. In the event of failure to respect these elements, the creditor runs the risk of facing severe sanctions.