Consumer Credit, Digitalisation and Behavioural Economics: Are new protection rules needed?
In 2008, the Consumer Credit Directive (CCD) was significantly changed by adopting a targeted harmonisation approach that aimed at standardising information disclosure duties and imposing similar rights all around the EU. Ten years later, this new version of the CCD has increased consumer protection in some EU countries. At the same time, however, it has had limited impact on the emergence of a single market for consumer credit, as the volume of cross-border sales remains marginal. In this context, the European Commission recently launched an evaluation of the CCD to assess its interplay with other rules and whether its current provisions are still fit for purpose.
Over the last decade, consumer credit markets have been transformed markedly. On the one hand, the fast digitalisation of the sector has contributed to new services, new processes and new providers. On the other hand, expanding knowledge of the behavioural biases of consumers has been slowly challenging the status quo of how authorities should design consumer protection rules. Both phenomena present opportunities that should be exploited by a possible new CCD, as well as risks that must be addressed, as summarised in the following recommendations:
- Overall, a possible revision of the CCD should ensure that the new rules are anchored in the Digital Single Market Strategy.
- The new CCD should contribute to unleashing the potential of digital tools in order to overcome barriers to cross-border sales of consumer loans.
- The revision should place some emphasis on digital interoperability, data privacy and the extension of the scope of the CDD to new fintech business models.
- In order to help mitigate the negative effects triggered by specific behavioural biases, personalised rather than standardised information disclosure should be encouraged.
- Given that the digital world is likely to accelerate the average speed of consumer decisions, the right of withdrawal should be maintained. The right of early repayment should be clearly communicated, as the decision to reimburse earlier often works against some key behavioural biases.
Sylvain Bouyon is Research Fellow and Head of Retail Finance and Fintech.
Janna Ayoub is a visiting researcher at CEPS.