Directive on credit agreements for consumers relating to residential immovable property
The Directive on credit agreements for consumers relating to residential immovable property (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.
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 those 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.
MCD Levels 2 and 3
A Delegated Regulation to the MCD sets out the minimum monetary amount of the professional indemnity insurance or comparable guarantee for mortgage credit intermediaries (€460,000 for each individual claim and an aggregate amount per calendar year for all claims of €750,000).
EBA published three sets of Guidelines regarding the creditworthiness assessment, arrears and foreclosures and regarding passport notifications for credit intermediaries.The latter Guidelines aim to ensure that information about credit intermediaries carrying out business in more than one Member State is exchanged consistently between national authorities. BIPAR responded to two consultations that preceded these passporting Guidelines and EBA took on board several of BIPAR’s comments regarding:
- the need for legal clarity on the triggering element regarding FOS and FOE activities of mortgage intermediaries. EBA acknowledged BIPAR’s request for a separate EBA document to specifically address passporting from the perspective of credit intermediaries.
- the need for clarity of the notification forms when referring to host or home Member States
- the fact that some of the information to be provided (branch details or the names of the persons in charge of the management of the branch) may not be available at the moment of notification of the intention to carry out FOE (final Guidelines now state: “to the extent available at the time of notification”).
The Directive requires the Commission to undertake a review of the Directive by 21 March 2019. This is the same final deadline set for Member States that already had an equivalent to the ESIS, to continue to use it.