Transposition of the mortgage credit directive in Europe
Stronger borrower protection rules, thanks to the streamlining of credit intermediation
Published in the Official Journal (JO) on 20 May, a decree transposes Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014 on credit agreements for consumers relating to residential real estate property into French law. Its objective is to strengthen consumer protection by imposing greater supervision of the activity of lenders and credit intermediaries. These new provisions affect credit institutions, financing companies, Intermediaries in banking operations and payment services, and consumers.
What are the applications of the European directive on credit agreements?
Here is a summary of the most important provisions:
1/ Advertising of mortgage contracts
Borrowers must now be provided with general information about:
- The mortgage contract
- Pre-contractual information, provided particularly in the form of a new European Standardised Information Sheet (ESIS), designed to allow borrowers to compare offers more easily
2/ Skills and ethics of lenders and credit intermediaries
- The staff of lenders and credit intermediaries must prove their professional skills, upon entering the profession and throughout their career
- The rules of conduct are strengthened
- Remuneration for intermediaries in banking operations and payment services (IOBSP) by credit institutions as well as internal IOBSP remuneration systems must not harm the client’s interests.
- The directive also establishes a European status for mortgage intermediaries. They can now do business throughout the European territory.
3/ An independent advisory service dedicated to the borrower
- An advisory service is established. Its aim is to deliver a loan contract tailored to the borrower’s needs. In addition, the borrower must be informed of whether the advisory service is independent.
- The borrower’s solvency must be evaluated on the basis of tangible data (income, savings, debt, etc.).
4/ Calculation of APR, home improvement loans, and duty to inform borrowers
- The adoption of the annual percentage rate (APR), already used for consumer loans, for mortgages.
- Home improvement loans which are not secured by a mortgage and greater than €75,000 will now be considered simple consumer loans.
- The duty to warn/explain is owed to all borrowers, even those who were previously considered “sophisticated”.
Implementation of the Mortgage Credit Directive
The decree entered into force on 1 July 2016. Nevertheless, the provisions on the requirements for professional mortgage lending skills are spread out between 1 January 2017 and 21 March 2019. With this in mind, the ORIAS has established continuous training. For it, there is “No revolution!” The French legal framework for mortgage loans is not fundamentally altered by this transposition. However, adjustments, some significant, are to be expected.
Although the new provisions will impact mortgage professionals, a system that Banque de France considers robust, some fear much more significant changes, which would come from the Basel Committee.