And, finally, the (long overdue) regulation of consumer credit...

A few days ago, a set of regulations1 were published in the Government Gazette in terms of the Consumer Affairs Act of 1994.2 These regulations, designated the Consumer Credit Regulations (CCR), are intended to regulate aspects of consumer credit transactions.

The publication of these regulations is a historic event. For the very first time our legal system has before it a set of rules which (someday soon) will regulate certain aspects of consumer credit.

Once they enter into force, Malta will have completed its transposition obligations under chapter 23 of the EU acquis, which deals with consumer protection.

This article examines the broader implications of this development. It suggests a rather troubled backdrop to these regulations and asks whether a Maltese consumer policy still exists.

I do not propose to review the detail of the regulations. The wider context is more interesting. In this context, two things should be stated at the outset: some legal control over consumer credit in general has been long overdue.

This is yet another area of consumer interest where, for many years, the Maltese consumer has been let down.

The regulations have a very intimate EU connection. The EU consumer credit directives3 (hereafter collectively referred to as the "EU directive") should have been transposed by Malta on its accession to the EU almost a year ago.

Clearly, this transposition is overdue. Though published, the regulations do not bind, as they are not yet in force. Another legal notice is required for that purpose.4

Various other important consumer measures have found their way into our law very late. These include EU-inspired regulation of product liability, product safety, timeshare, distance selling and unfair contractual clauses.

The introduction of these new rules has been inextricably linked to the timing and progress of Malta's road to accession.

Consumer credit phenomenon

Credit in consumer transactions has been with us for more than a century. Credit terms made it possible for consumers to buy otherwise unaffordable appliances for the first time, like cars, other consumable goods, and indeed even homes.

The first consumer item sold on a buy-now-pay-later basis seems to have been the sewing machine.5 Credit fuelled consumerism and helped create the consumer society.

The availability of credit made it possible for consumers to buy mass- produced goods that were being offered to the newly identified mass market at relatively lower prices than before. Credit made payment much easier.

Maltese consumers have entered into thousands of credit agreements and signed even more thousands of bills of exchange securing the payment of instalments.6

As in several other areas, the state failed to react adequately and did not provide at least some minimum safeguards against possible abuse. Despite its undoubted social and economic utility, consumer credit may have a negative side. These are a few concerns:

¤ it may encourage careless and carefree spending that may result in overborrowing;

¤ many consumers are usually not sharp enough to realise that, through certain interest calculation mechanisms, the final total cost of the credit may be higher than they imagine; and

¤ consumers may be prejudiced and placed in a legally awkward position by the terms under which credit is provided, particularly through the imposition of pre-formulated one-sided agreements. (Many readers would remember Lohombus Corporation, with its terribly one-sided standard home loan agreements.)

The practice of selling on credit to consumers and accepting, say, monthly instalments, draws into the discussion other big issues relating to 'hire purchase' and sales with reservation of ownership.

There is no space here to elaborate except to comment that (a) we do not have a proper law regulating the contract of hire purchase and that all we have is some unsatisfactory patchwork of court cases delivered over the years; and (b) hire purchase was in reality a smart legalistic trick7 that placed the unwary consumer in a very disadvantageous position in a number of ways.

One needs to reflect how far these new regulations have remedied this anomaly and redressed the consequential injustice caused by the law's former indifference.

The law's delays

The recent regulations have been issued under Article 7 of the Consumer Affairs Act, 1994, by the minister responsible for consumer protection (also responsible for "competitiveness").

The National Programme for the Adoption of the Acquis (more commonly known as the NPAA) had actually promised that these regulations would be issued by the second quarter of 2002.8 That deadline passed some time ago. It proved unduly optimistic and unrealistic.

Nonetheless, Legal Notice 84 represents the only part of the EU consumer protection acquis that Malta has been late in transposing. This is a pity, seeing that the rest of this chapter had been implemented in a timely fashion, mostly through the 2000 amendments to the Consumer Affairs Act.9

The EU Directive

The EU Directive offers member states various options. Most importantly, it allows them to determine at what level they wish to intervene. The option is basically between having a full licensing regime, a milder registration regime or a merely oversight regime.

Malta has adopted the last option and the Department for Consumer Affairs has been assigned the responsibility to oversee the workings of this Act.10 In technical terms, this reflects a soft law, i.e. a relatively non-interventionist approach.

The EU directive achieves greater transparency and certainty for consumers. It requires traders to provide them with adequate, correct and timely information. The credit agreement has to be in writing and a copy given to the consumer.

This approach is based on the assumption that an adequately informed consumer would take sensible purchase decisions and would understand the contractual and financial implications of what he is getting into, particularly in the area of interest and late or accelerated payments.

These rules are reflected in the recent legal notice, which also deals with the issue of repossession by the creditor, home loans and the establishment of a common EU-wide APR.

Equally significant is what the regulations and directives do not expressly impose. They impose no maximum interest rate chargeable to consumers, no mandatory cooling off period, no mandatory licensing or registration system for credit suppliers. These elements remain within the discretion of each member state.11

Like many other consumer protection directives, the EU directive is a minimum directive. This means that it only sets out the minimum or skeleton framework. Each member state would have to add flesh to it, transposing it in line with its legal and economic development, public expectations and other relevant circumstances.

Predictably, local commercial lobbying insisted that Government should adopt the minimum (i.e., the lowest) permissible level of consumer protection. The suggestion is that consumer protection is not good for business.

It is a burden which supposedly makes local traders less competitive. At best, this reflects a self-serving and defensive attitude lacking in ethical justification and falling short of best business practice.

That is the problem with minimum directives - they make it possible for some member states, which lack a proper consumer culture or whose authorities become susceptible to capture, to adopt the minimum measures allowed. Consumers beware, indeed.

A national policy?

Whatever one's bias, and irrespective of these regulations, it is shameful that we have had to wait so long to have any form of regulation over consumer credit transactions. The new regulations are therefore welcome.

However, we have to admit that they are here mainly because we are now part of the EU - not as a logical product of a national policy or political conviction. That is the naked truth.

A policy is matured on a vision of where we want to go and what we want to achieve. Do we still have a national consumer policy at all? It seems not.

We used to have one until recently. The promise of the August 199112 and November 1993 White Papers on consumer policy seems to have disappeared.13 Instead, one finds a vacuous legal and political obligation to implement EU Treaty obligations.

But necessity is no substitute for policy. Merely relying on measures to come out of the EU is the very negation of the concept of developing and constructing a coherent policy of one's own.

EU consumer policy should supplement and complement a national policy, and vice-versa. We need them both. EU directives tend to be largely piecemeal initiatives and do not by themselves create a complete framework for consumer protection.

EU consumer policy, such as it is, was never intended as a substitute for national policies. Without a properly identifiable policy of our own, we cannot hope to exercise a positive influence on the future development of EU consumer policy. Instead, we risk exerting an irrelevant or negative influence.

How sadly ironic it would be if EU membership inadvertently spells the end of Maltese consumer policy-making. Surely we can do better than this.

For decades, the law has falsely pretended that a consumer credit problem did not exist. EU accession was celebrated a year ago. The CCR were published a few days ago. They are not yet in force and await a legal notice to breathe life into them.

In the meantime, Malta regrettably remains in breach of EU law in this respect. It is time to remedy this shortcoming. Further delay would be disrespectful to consumers.

Dr Fabri lectures on consumer protection and legislation at the University of Malta.

References

1. Legal Notice 84 of 2005.

2. Act XXVII of 1994, Chapter 378 of the Laws of Malta.

3. Directive 87/102 as amended by Directive 90/88 and as further amended by Directive 98/7. See regulation 19 of the Consumer Credit Regulations, 2005.

4. See CCR regulation 1 (2).

5. According to Borrie and Diamond, The Consumer, Society and the Law, Pelican, third ed. 1966, p. 154: "The Singer Company claims the honour of being the pioneer of hire-purchase trading, back in the 1860s."

6. The use of bills of exchange in consumer transactions is one important issue which remains untouched by the CCR. It may have to be revisited in future.

7. "That conceptualisation of the transaction was artificial, for it ignored the fact that almost all consumers entered hire purchase with the intention of acquiring ownership." Cranston's Consumers and the Law, Colin Scott & Julia Black, third edition, 2000, Butterworths, p. 233.

8. Published by the Ministry of Foreign Affairs, undated, and described as "Final Draft". It is still available on the MIC Website. See pages 251-2.

9. Act XXVI of 2000.

10. See CCR regulation 16.

11. In the UK, for instance, the Consumer Credit Act of 1974 introduced a strict licensing regime for most providers of consumer credit-related services, including Credit Reference Agencies, which remain unregulated in Malta, even after these regulations. The Act was adopted following the publication of the Crowther Committee Report on Consumer Credit (Cmnd 4596, 1971).

12. Rights for the Consumer, DOI, August 1991.

13. There was a time when Government could confidently claim: "This Government's commitment to develop an extensive and comprehensive framework for the promotion of consumer welfare continues unabated." (First sentence of White Paper, Fair Trading - the next step forward... (DOI, November 1993) A year later, Government could also claim credit for a completely home-grown law, the Consumer Affairs Act of 1994.