In 2009, nine million households, or a third of households, had a consumption credit. More and more French people are moving from excessive indebtedness to total over-indebtedness. This progress has led the government with the Lagarde Act to deeply reform consumer credit to develop access to credit but to a more responsible credit and thus better support people who are experiencing debt difficulties.
What is consumer credit reform?
In terms of prevention, a reform of the consumer credit has been launched and the government plans to reduce the examination time of each over-indebtedness file from six to three months. The Banque de France has become a key player by steering more than 33,000 cases towards a conventional recovery plan.
The rules of consumer credit are about to be deeply upset. The government wants to promote “responsible lending” and prevent over-indebtedness by allowing greater visibility of credit risk in a crisis context. The Directive, applicable as of May 12, 2010, applies to all forms of consumer credit agreements with the exception of loans for the purchase of real estate, mortgages, leases, overdrafts of less than a month and free credits. Now works credits are covered by the law of consumption. This directive concerns loans between € 200 and € 75,000, whatever their duration (currently € 21,500 and over 3 months).
Points addressed during the draft project on the reform of consumer credit
The credit institution must know all the financial characteristics of the credits it proposes. In addition, setting up a sort of obligation to explain the risk of “credit addiction” to consumers will prove formidable.
Consumers must get used, to read on each advertisement, the formula: “a credit commits you and must be refunded” as well as “eat at least five fruits and vegetables a day”. As a result, advertising can no longer suggest that a credit “improves the borrower’s financial situation”. It should present a single, costed example illustrating the cost of credit with the requirement to include the credit interest rate in a size at least as large as the one used for the promotional interest rate.
On the other hand, the lender must ensure the solvency of the borrower by consulting the FICP file. The text provides that each term of a revolving credit, a portion of the capital is repaid, while yesterday the monthly payments could include only interest.
From there, the government had to shorten the FICP registration period from 8 to 5 years following a personal recovery procedure and from 10 to 5 years in the case of a repayment plan following an over-indebtedness procedure.
The government has accelerated the over-indebtedness procedures and proposed:
- Shorten the deadline for the over-indebtedness commission to decide on the admissibility of an over-indebtedness case from 6 to 3 months
- Suspend enforcement proceedings upon the admissibility of the over-indebtedness case
- Give power to the over-indebtedness commissions to decide on rescheduling of debts and deletions of interests.
- Enable borrowers to remotely access the relevant FICP file information.
Following the reform of consumer credit, the consumer can now freely choose his credit insurance provided that the insurance of his choice provides guarantees equivalent to those requested by the bank for its group contract. A sheet of advice and information must be given to consumers to enable them to compare the offers.
Your status as a consumer has been strengthened:
Thus, from May 2010, after the transposition into national law of the new directive on consumer credit, Your status as a consumer has been strengthened.
Before the conclusion of the contract, the lender must provide you with a series of understandable credit information in due course. This information is communicated to you in standardized form (European standardized information on consumer credit) and will include the annual percentage rate of charge, ie a single figure corresponding to the cost of credit.
The lender must indicate the essential information in the contract. After the reform of consumer credit, in order to facilitate the repayment of revolving loans, each maturity of a revolving credit must include a minimum repayment of the borrowed capital. In addition, the consumer-borrower is now informed in his monthly statement of the estimated duration that will take the repayment of his credit.
If you regret your decision to take out a credit, you have a period of fourteen days from the conclusion of the contract to retract without giving any reason. This 14-day right of withdrawal applies to all consumption credits throughout the EU. This delay leaves 7 days more than today to the consumer to find a more advantageous financing at a lower interest rate if he wishes. Nevertheless, the deadline can be reduced to 3 days at the express request of the consumer,
You can repay your credit before the date originally scheduled in the contract, but the lender can claim fair and objectively justified compensation.
In the event of non-compliance with the rules on the reform of the consumer credit
The criminal offenses (€ 1,500 and € 30,000) already in place have been extended to the new provisions of the Lagarde Bill, particularly with regard to loyalty cards and advertising. Thus, if an advertisement does not reproduce the compulsory mention introduced by the law, the advertiser on whose behalf it is broadcast will be punished with a penalty of 1,500 euros. Finally, the bill introduces a full liability of the lenders towards the borrower for the proper performance of the obligations relating to the conclusion of the credit agreement, including when these obligations are performed by bank intermediaries.
Why does the reform affect the repurchase of credit?
The consumer credit reform of the Loi Lagarde is logically linked to the purchase of credit. As credit buyback operations mainly involve the purchase of consumer loans that have become too burdensome for borrowers, it seems legitimate that the repurchase of loans should be concerned, even indirectly through the reform of consumer credit. This is what Senator Philippe Marini underlined during his bill, declaring that he wants to include a more legislated framework for loan buybacks. The Minister of Economy, Christine Lagarde, has therefore included the purchase of credit in its consumer credit reform.