01 Feb 2000

Consumer Credit in the European Union

Nuria Diez Guardia

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Economic deregulation in many industrialised countries during the 1980s, the liberalisation of capital movements within the European Union (EU) in 1990, and the establishment of the single market for financial services have radically transformed the regulatory framework of European financial markets. One of the main objectives of the single market programme (1985) was the opening of national markets in order to create a European financial area with the free provision of financial services. Its implementation started in 1993 with the application of the second banking directive. In this context, monetary union is often seen as the accomplishment of the process of European financial integration. The elimination of exchange risk should indeed boost cross-border competition.

The nature and speed of integration differ between wholesale and retail financial markets. Despite the pressure towards convergence stemming from monetary unification, national differences and market segmentation still characterise retail credit markets across EU member states. A first objective of this study is to compare the structure and developments of consumer credit markets in the EU.

Differences in national institutions and practices in the consumer credit sector lie behind the move to a European harmonisation of the laws, regulations and administrative provisions of the member states in this area. In addition to the changes to the legislative and regulatory framework of consumer credit which fall within the scope of national market deregulation – with the lifting of controls on interest rates – and European integration, the Community has adopted directives to protect the consumer. Consumer protection regulation covers different aspects and, as regards consumer credit, the cost of credit and its expression through the annual percentage rate of charge. A directive governing consumer credit was introduced on 22 December 1986, and was subsequently amended and completed by the directives of 22 February 1990 and 16 February 1998. The second objective of this report is to study the effectiveness of such regulation.

This report analyses consumer credit markets and their regulation at European level. After a chapter devoted to definitions and methodology, the second chapter of the report analyses the European consumer credit markets. The third chapter studies the European harmonisation of national provisions concerning consumer credit and focuses on the information regarding the cost of credit.