Credit and the consumer

On entering into a credit agreement, consumers are now backed, for the first time, by national legislation in the guise of the consumer credit regulations. These regulations, which in most part came into force on July 18, govern the disclosure of the cost of consumer credit by establishing minimum rules to protect them. In other words, they aim to ensure that comprehensive information is provided to the consumer by the creditor when borrowing money and buying goods or services on credit. In order to achieve this, the regulations impose an obligation to provide a potential borrower with prescribed information about the contract s/he is to enter into. As a consequence, consumers will be better informed of their legal rights and enabled to choose the best consumer credit arrangement for their purposes.

The complexity and lack of transparency of some financial products has hitherto impeded consumers from choosing the right product for their needs. Having had to transpose a directive into national law, therefore, has contributed to correct such former inadequacies and provided a sound spring-board to further improve and develop a more efficient consumer credit law.

The improved information disclosure requirements found in this legislation will now facilitate consumers to compare goods or services while reducing the chances of being misled. Credit providers must disclose key information, not only in connection with the terms of credit but also in connection with the total cost of that credit. For this purpose, the regulations have introduced a standardised method for calculating and disclosing the finance charge as a percentage rate per annum - the annual percentage rate of charge (APR). In addition, in home loan agreements, disclosure of key information also includes related costs such as administrative costs, insurance costs, legal costs and the costs of intermediaries. The provisions relating to home loan agreements will come into force on October 1.

The regulations also prevent credit providers from charging consumers unreasonable fees and penalties in case of early repayment, in which case the consumer will also be entitled to a proportional reduction in the total cost of the credit. An infringement of these regulations constitutes an offence to which specific penalties apply.

Moreover, all provisions in favour of the consumer are not subject to party autonomy. The regulations make clear that the rights granted to consumers may under no circumstances be surrendered.

In conclusion, it might not be amiss to point out that legislation is not the only means to adequately armour a consumer. Business and consumer organisations all have a part to play, including the Director of Consumer Affairs. Indeed the director shall continue to monitor the workings and effectiveness of these regulations, investigate complaints and provide relevant information and advice to consumers and lenders alike, whenever appropriate.

Ms Buttigieg is director, information and client affairs, Consumer and Competition Division.