Directive on credit agreements for consumers relating to residential immovable property
The Directive on credit agreements for consumers relating to residential immovable property (“Mortgage Credit Directive” or “MCD”) entered into force on 21 March 2016.The Directive aims to improve consumer protection measures across the EU and establishes principles for the authorisation and registration of credit intermediaries. BIPAR monitored the preparatory phase of the Directive until its adoption as well as the levels 2 and 3 proceedings. The MCD stated that the Commission should undertake a review of the Directive by 21 March 2019. The outcome of this is not yet known.
Key provisions of the MCD affecting credit intermediaries
The MCD is a minimum harmonisation Directive, with the exception of its provisions regarding the European Standardised Information Sheet (ESIS) and the Annual Percentage Rate of Charge (APRC) that are maximum harmonisation.
- Credit intermediaries are required to respect conduct of business rules and rules regarding knowledge and competence of staff, give general pre-contractual information as well as personalised pre-contractual information through the ESIS and give adequate explanations regarding the proposed agreement(s).
- Credit intermediaries are required to comply with information requirements, e.g. if they offer advisory services, the fee where applicable, the existence and -where known- the amount of commissions or other inducements. At the consumers' request, non-tied intermediaries must give the variation in levels of commission (consumers must be informed of the right to ask). In case of a combination of fee and commission, they need to mention whether they are offset. The fee is communicated to the creditor for the calculation of the APRC.
- Creditors and intermediaries have to explicitly inform the consumer if they provide or can provide advisory services. Before the advice is provided, extra information has to be provided on the product range that is advised on and on the fee (or method of calculation) - if applicable. In case of advice, creditors and intermediaries have to obtain the necessary information from consumers regarding their personal and financial situation, preferences and objectives (suitability), have to act in the best interests of consumers and have to give a record of the recommendation.
- Creditors and tied intermediaries have to consider a sufficiently large number of agreements in their range in order to recommend a suitable or several suitable agreements and non-tied intermediaries have to consider a sufficiently large number of agreements in the market in order to recommend a suitable or several suitable agreements.
- Member States may prohibit the use of the word “advice” or advisor” or similar terms for creditors and tied intermediaries and they shall make independent advice/advisor conditional on: considering a sufficiently large number of agreements available on the market and where the number of creditors considered is less than a majority of the market, not be remunerated for those advisory services by one or more creditors.Member States may impose more stringent requirements in relation to the use of the term "independent”, including a ban on receiving remuneration from a creditor. Member States shall ensure that advisory services are only provided by creditors, credit intermediaries or appointed representatives, although exceptions are possible.
- The Directive foresees rules regarding the admission of intermediaries (subject to PI cover, good repute and appropriate knowledge and competence regarding credit agreements, according to an Annex of the Directive), cross-border activity and supervision.
- The MCD also regulates cross-selling: Member States shall allow bundling but prohibit tying. Tying is however allowed under certain conditions. A specific provision regarding cross-sales with insurance states that Member States may allow creditors to require consumers to hold a relevant insurance policy related to the credit agreement, but creditors have to accept the insurance policy from a supplier different to their preferred supplier where such a policy has a level of guarantee equivalent to the one they have proposed.
In autumn 2019, the European Banking Authority (EBA) contacted BIPAR in preparation of its review of the Regulatory Technical Standards (RTS) on the minimum amount of professional indemnity insurance (PII) cover for mortgage credit intermediaries.
BIPAR provided EBA with data in relation to:
- PII taken out by financial services firms like insurance intermediaries (required under the IDD, since 2016) and in particular mortgage credit intermediaries (under the Mortgage Credit Directive - MCD, since 2016) (for example are the amounts the same / higher than MCD sets out, etc.);
- Specific numbers of PII providers, the number of contracts taken out, number & value of claims made and/or claims paid out, or similar.
In March 2020, EBA published its report on the review of these RTS on PII for mortgage credit intermediaries, concluding that there is currently no evidence that would suggest that the PII minimum monetary amounts would need to be amended. EBA adds that the claims lodged by borrowers against credit intermediaries are very limited and do not suggest that the minimum amounts specified in the RTS are insufficient and require upwards adjustment.”
EBA has to review the RTS on PII every two years.
The Commission had to undertake a review of the Directive by 21 March 2019. The outcome of this review is not yet published.
- Published on June 2020 -