Consumer Credit: Present situation and proposals renewal of European and national normative

INCORPORATION OF EUROPEAN NORMATIVE INTO THE NATIONAL LEGISLATION

SPAIN

The current regulation in Spain is contained in Law 7/1995, 23 March, concerning Consumer Credit (LCC), issued to fulfil Directive 87/102/CE, 22 December, which main objective was to obtain a common market for consumer credit in the scope of the European Union. It has been taken into account its amendment by Directive 90/1988, February 1990. Currently, there is a new Directive in the preparation process, which main purpose is trying to solve the big problems arisen in various States derived from the deficient consumer protection contained either in the European norm or in National norms.

The Spanish Law contains a large number of application exclusions for certain situations that obtain the opposite effect to the global protection of consumers with a single norm. There are almost more situations excluded from the LCC than those that take advantage of its protection. There is not a norm amendment specific to other laws that protects the situations excluded from the LCC, which produces a norm gap entirely detrimental for the best consumers´ interests protection. In order to expose the irrelevancy of the consumer’s protection contained in that norm, for situations relating a rendering service contracts and the contracts of their financing, let only mention that the application exclusions of the LCC are been taken advantage of by financial entities in the scandal of the massive closing of the languages academies in Spain, with affected hundreds of thousands.

The Consumer Credit Law was modified after the scandal of massive closing of some language academies; a reform conducted with a little refined legal technique which it does not even cover the thousands of people affected by the problem, and which is even more dispersed. The reform could have been used to introduce the concept of connected credit contract, as it is done in the amendments to the proposal of the new Consumer Credit Directive.

We will be before a credit contract when the banking entity grants it, or it is committed to grant it, and when the other party takes part in the contract as a consumer. And one is a consumer when he/ she is a natural person (in this concept they are excluded all legal entities), and when one looks for his/her personal benefit. That is, when one pursues to satisfy his/ her personal needs, unconnected to one’s professional or business activity, through a contract. The contracts will always have to be realized in writing, otherwise they will be declared null.

In order to the credit to be a subject to the LCC, the payment of interests must have been stipulated specifically. In the case of not paying interests, the consumer has to make payment of the expenses and charges that he is obliged to pay by the credit. After the scandal arisen in Spain by the closing down of a large number of language academies, which financed the cost of the courses through arranged consumer credits with financial entities the LCC was modified. In case of successive realization of services and extended benefit, they will not be considered free of charge. Therefore, they will be included in the LCC those credits in which, their granting implies some type of repayment by the services supplier to the financial entity, although the equivalent annual rate of charge may be equal to zero. In addition, the credit should neither be lower than 150 euros, because then it would be regulated by the civil code, nor higher than 20,000 euros, because it would be subject to a special rules.

The consumer, besides of being able to exercise his/her rights against the supplier of the goods or services, will also be able to do so against the financial entity that granted the credit.

In order to derive the responsibility to the lender, which has a subsidiary character, there will have to be combined all the following requirements:

a) the consumer has arranged a financing contract with a lender different from the supplier for the acquisition of goods and services.

b) there is a previous exclusive agreement between the credit lender and the supplier of the goods or services, by virtue of which the credit lender will offer credit to the clients of the supplier for the acquisition of the goods or services.

After the aforementioned scandal of the closing down of the English academies, the LCC was modified. After that reform, in the case of successive realization of services and extended benefits provided, it is demanded that there is a previous agreement between the lender and the supplier by virtue of which there will be offered credits to the clients of the supplier for the purchase of his/ her services. In these cases it is provided that the consumer will have the option to arrange the credit contract with a different lender from whom the supplier is entailed to by virtue of the previous agreement, that is, in this cases all reference to the exclusive feature disappears.

c) The credit obtained by the consumer has been made in application of the previous agreement mentioned above.
d) The goods or services have not been totally or partly accomplished, or they were not according to the agreement in the contract.
e) The consumer has claimed by court action or out of court, by any official legal means against the supplier and has obtained the satisfaction to his/ her rights.

This lender responsibility, in case of fulfilment of all and each one of the conditions, is shown in the following aspects:

a) The Consumer’s right to suspend the pending payments, if the trader does not fulfil correctly his/her obligation. When the trader fulfils, the user/ consumer has to pay all the terms of suspended payments, though without delayed interests.

b) In the entailed credits, the consumer can demand to the lender the fulfilment of the trader obligation.

c) The article 15 of the Consumer Credit Law authorizes the consumer to demand to the lender the return of the price of the goods, after the resolution of the contract. In this case, the lender operates as a guarantor of the trader.

d) And therefore, the consumer can also demand, by means of the estimated action, to reduce the amount the price of the goods in the assumptions of defective goods.

Germany

Since January 2002, all relevant legislation concerning credit agreements is incorporated in the Germany Civil Code “Bürgerliches Gesetzbuch” (BGB). The regulations are contained in sections 488 – 507 BGB and are based on the Directives 87/102 and 98/7.

Unlike the Spanish Credit Consumer Law, this norm is applicable to people who withdraw money by means of any financial entity to hold a profession, in this respect, they are contemplated as consumers while the amount is inferior to 50,000€.

The regulations do not apply to loans involving amounts less than 200 € and to any loans -provided the annual percentage rates of charges are below those prevailing on the market- granted by an employer to an employee, or by the State for promoting town planning or the acquisition of real state property.

Loan agreements have to be in writing, and the consumer has to receive a copy. It is established that the copy received by the consumer must state:

- the net amount of the credit (total real amount to be paid by the consumer)
- the total number of instalments to be paid
- the repayment terms
- the interest rates and all other charges of the credit
- APR
- the cost of the payment protection or any other insurance related to the contract
- required securities

Contracts not meeting these requirements are null or void. However, if the consumer receives the money, the contract becomes valid. The omission of the interest rate or the APR, reduces it to the legal interest rate. The costs not mentioned in the contract do not have to be paid.

Trial period:

Regulated credit loans entitle the consumer to a two weeks trial period.
Within that trial period, the consumer can revoke his acceptance. The two weeks period only begins once the consumer has received a written instruction and a copy of the credit agreement. The instruction must clearly state the consumer’s right of revocation, the beginning of the two weeks period, and the name/ address of the creditor.

The trial period plays also an essential role for credits granted for the acquisition of goods and services. Although there are two separate contracts, they are regarded as a linked transaction, because they perform as an “economic unit”. This is for instance presumed, whenever the creditor and the supplier of goods/services have a pre- existing agreement by which the credit is made available to pay for the goods. The credit agreement can be resolved, or vice versa the contract for the purchase of goods/ services can also resolve the other contract. Under these circumstances, payments received by the trader must be repaid by the creditor. Contrary to the Spanish, Greek and Italian legislation, it is omitted any reference to the exclusivity.

In case of faulty goods, the consumer is entitled to discharge his/her obligations under the credit agreement, as he would be entitled to do so before the provider of the goods/services. However, if the amount of the loan is less than 200€ or the rights acquired are from a change in the contract of goods/services entered into after signing the credit agreement, no such right exists.

ITALY

The Italian finance law is mainly regulated by a consolidated act, enacted by the Government under parliamentary control, identified as Legislative Decree number 385, year 1993.

The credit to consumers is one of the subjects that the Decree refers to: the articles 121 to 126 are especially relevant to that purpose, although we can also find other norms spread around the Decree, the Civil Code and other laws.

The recent Italian credit to consumers Law was intended to enact the EC Congress Directive 87/102/EEC, and therefore to make Italian law consistent with the Community legislation.

However, the Italy Government judged that the Directive text offered insufficient consumer protection, and therefore decided to add new provisions that in some ways went beyond the obligatory ones. For instance, according to article 124, a credit agreement is void for lacking of an essential term if there isn’t an analytical description of the goods or services which are bought with the money provided by the financing company. Moreover, the financing company has to apply a law-limited interest rate if there is no indication of it in the credit agreement. Italian legislation, according to EU provisions, is very specific about forms of indicating the exact amount of interests to be paid in an understandable way. So, there are two different rates to be indicated in a contract: the T.A.N., or annual nominal rate, and the T.A.E.G., which includes expenses of various types, and which is intended to indicate the real annual global rate.

Either way, even if the current law has been intended to guarantee a good level of protection to consumers, during last ten years we have noticed that some relevant problems still remain unsolved.

Article 125, enacting article 11, second paragraph of Directive 87/102, provides that, in case of the breach of contract by the provider, the consumer can lodge a court action against the credit company in order to obtain the interruption of payments and the restitution of the sum already paid, only when there is an exclusive pre-agreement between the grantor of the credit and the provider of the goods or services.

GREECE

Directives 87/102/EEC 22nd December 1986 and 90/88/EOK 22nd February 1990 "for the approximation of laws, regulations and administrative provisions of the Member States concerning consumer credits" were implemented to the Greek legislation through the Ministerial decision F1-983/1991, published in the Government’s Official Gazette No B 172.

The basic concern of this decision was the harmonisation of the Directive and the determination of the Annual Percentage Rate of Charge, which is the total cost of the credit to the consumer, expressed as an annual percentage of the amount of the credit provided, and calculated according to the mathematical formula contained at the end of the decision. Credit agreements must always be in writing.

A written copy of the agreement must be provided to the consumer. The agreement explicitly defines: the Annual Percentage Rate Charge, and all data related to the provision of the credit, i.e. description of goods or services covered in the agreement, price in cash and price payable according to the credit agreement, the sum of money that might have been paid in advance, a report indicating that the consumer is entitled to claim a reduction on the total cost of the credit in case advanced payment, and the deadline of a trial period for the consumer, if this is provided.

The agreements that are operated by credit cards should include: the amount of credit limit, if there is any, the terms of refunding, the trial period, if there is any.

In case the consumer accomplishes his contract obligations before they are falling due, a reduction on the total cost of the credit is applicable. This reduction will be equal to the difference between the remaining sum at the day of refunding and the current value of the remaining sum on the same day.

A very important provision is the one which specifies the case where the creditor's rights, under a credit agreement, are assigned to a third person, the consumer shall then be entitled to plead against that third person any available defence against the original creditor. In the following cases, the consumer is also entitled to claim to the third person any requirements he/she has against the original creditor:

a) for the purchase of goods or to obtain services, the consumer enters into a credit agreement with a person other than the supplier of those goods or services

b) the lender and the supplier of the goods or services have a pre-existing agreement where under credit is made available exclusively by that lender to the customers of that supplier, for the acquisition of goods or services from that supplier

c) the consumer referred to in subparagraph (a) obtains his/her credit in accordance to that pre-existing agreement

d) the goods or services are not provided or are only provided partially, or do not respond in any way to the terms of the supplier’s contract

e) the consumer has lodged a claim against the supplier but has not been able to obtain the satisfaction to which he is entitled.

The consumer, after the exercise of the lawsuit is made and until a Court of Appeal decides on the dispute between the consumer and the supplier, has the right to refuse the payment of his pending debt to the credit entity.

MAIN PROBLEMS FOR THE CONSUMERS

SPAIN

In Spain the main problem of financial consumption appeared when the English and computer science training centres OPENIG /AIDEA close down unexpectedly in summer 2002, leaving without their entitled training to thousands of students around the national territory. After that closing down, other languages training companies followed in cascade (Wall Street Institute, Sylvan, Brighton, Oxford, etc).

All of them were characterized to have the same system of payment for their courses: in advance, or in terms with so many monthly instalments as the contracted course lasted.

The students signed in the academies contracts ignoring most of them that they were of two types: one for the training with the academic centre, and another one for its financing with a financial entity.

The conflict appeared when after the closing down of the academies the financial entities demanded the payment of the monthly pending instalments until the conclusion of the courses. Obviously, the students who were left without the contracted training were surprised by the banking claims to pay for services that were not being met. They were even more astonished when they realized that the financing operation had been agreed with a third party, as they thought had only signed a direct debiting for the monthly instalments of the payment of the courses.

The reality was that the student had signed two contracts in the academy: one for the training with the academic centre, and another one for the loan with a credit entity, so that with the financed money be able to satisfy the amount of the price of the training contract. In this case, after the breach of contract of the academy, the student will be able to exercise all the rights the legal system grants to him against this financial entity. If the contracts fulfil certain conditions, he will be able to exercise a number of rights against the lender, Consumer Credit Law art. 15, 1995. In the case of the academies, we can consider the existence or not, of a previous agreement between the lender and the supplier, or as the law specifically mentions: "approved in exclusivity ".

Nevertheless, in some of the sentences it is said that having a planned collaboration between lender and supplier, it is possible to interpret this condition as extensive.

Indeed, the breach of the academy authorizes the student to exercise certain rights against the lender, due to the existing causal connection between both contracts. The planned collaboration is deduced to objective criteria of collaboration: the absence of direct bonding between the student and the mutual lender, the remissions that are contained both in contractual documents, etc. In the analyzed case, many students have obtained the loan from a credit entity due to the arranged collaboration between the academy and the credit entity. It can also occur the case that the contracts are interpreted as tied up, although not in "exclusive feature", in the terms demanded by the law of consumer credit. In this case, and after the breach of the academy, the student has two rights against the lender:

1) the right to suspend the payment of the monthly instalments, previous communication to the credit entity of its intention to do it; and

2) the right to obtain a reduction of the price for the training contract, reduction that will take effect in the credit contract, in the sense that the amount of the loan granted will be reduced in the same quantity as the price of the training contract is reduced. This loan reduction will cause, in election of the student, a reduction of the number of amortization terms (maintaining its amount), or reduction of the amount of the terms (without affecting the number of terms).

It is necessary that this second right is articulated by means of a bill of complaint in which they are both, the academy and the credit entity, demanded. In order to be able to exercise some of these rights, it is required that the academy has failed to fulfil its obligations, that the student has demanded their fulfilment, and that this claim is has been unsatisfactory [art. 15.1.d) and e) LCC]. It is evident that the claim is unsatisfactory if the academy is in suspension of payments. If the student solves the training contract (by breach of the academy), he will also be able to solve the contract of the loan tied to it. In such case, the liquidation of both contracts will take place in such a way that it does not damage the student.

All this great scandal, with hundreds of thousand of affected consumers, has generated a multitude of legal procedures all over Spain, initiated by Associations of Consumers as well as by individual consumers, after the refusal of the financial entities to solve the conflict out of court. As it was predictable, the decisions of the Court of Justice were not always the same, giving favourable and unfavourable sentences to the consumers.

The financial entities take reference in the clumsy writing of the LCC to defend the validity and autonomy of their financing contracts, interpreting the law according to their interests and incurring in an authentic law fraud prohibited in the Spanish Legal System. Thus, they allege findings of this nature: when it is not the same person who signs the training and the financing contracts, they do not have the condition of consumers who sign the credits, because in their opinion they do not fulfil the condition of satisfying "personal" necessities, separated from their professional or business activity; that the credits are free and are excluded from the LCC because it appears in the financing contracts an equivalent annual rate of interest zero; and that it does not exist entailment between the contracts as there is no "exclusivity " feature. Allegations, all of them that have come rejected by most Courts of Justice, giving reason to the consumers and to the Consumers´ Associations who through ADICAE have interposed several collective demands, having obtained condemnatory sentences against the financial entities.

Germany

The main problems concerning consumer credits relate to the information and transparency about the costs. Consumers are more or less deliberately kept in the dark about the real costs they have to pay. This is achieved through a payment protection (PPI) or accident insurance, sickness and unemployment insurance (ASU); through obstacles concerning the conversion of the debt and through the individual interest rate.

a. PPI and ASU

As a rule, lenders require to the borrowers either to subscribe or maintain insurance contracts. Under Germany law, the premiums payable under the insurance only have to be included in the cost for the credit if they are compulsory. However, the contract forms always contain an offer for PPI/ ASU: Lenders include a box on the application form that must be ticked to select PPI or ASU. Also quite common and even worse are the application forms in which the insurance is included by default, unless one ticks a tiny box to exclude it. Despite the common place that one should always read a contract before signing it, a surprisingly high number of people actually does not do so or , if they do read the contract, simply do not fully understand the meaning of PPI/ ASU. On receiving the prepared contract, they just sign it and without realizing it they are stuck with an insurance, the appropriate box had already been ticked by the bank employee. Under those circumstances it is difficult to prove that the insurance is not an optional agreement.

b. Individual Interest Rates

Transparency is also obscured by a new development of the Germany consumer credit market. In Germany, as in most of the other continental Member States, consumer credit is a legal monopoly of banks. With the economy being at standstill, banks have rediscovered consumers.

Unfortunately, banks now start to introduce unknown methods in Germany until now, but common in the UK and the USA: The interest rate to be paid is set in relation to the consumers’ financial situation, which usually means the income. In the UK, interest rates can thus reach 600- 800 per cent. For instance, consumers having an income of up to 1.500€ pay an interest of 12,38 per cent for a term credit, while an income above 3.000€ cuts the interest to 6,96 per cent. It is quite common nowadays that banks do not advertise but one specified interest, instead of a range of interests from, for example, 5,6 % to 16, 99 % for a credit repayable in 12- 36 months

As a consequence, consumers earning less have to pay higher interest as their solvency is regarded to be low. This is of course highly unfair since a lower income does not mean anything about the ability to repay the credit. The main reasons leading to financial crises are unemployment and illness, both of which can hit just the same consumers with a high income. With an unemployment rate higher than 4.5 millions, obtaining a credit has become more difficult and expensive for a growing part of our society. Likewise, banks now value the applicant’s age more than they used to when considering credit applications. Therefore, older people nowadays also find increasingly difficult to obtain a credit, even if the do have assets and the credit could actually be secured by a mortgage on real state.

c. Conversion of debt

Another way banks frequently choose to raise profit is conversion of debt. This problem occurs when customers already taking out a credit need more money. Commonly, these consumers use their overdraft first. On being advised by the bank on the high interest for overdrafts, they are talked into simply taking out more credit at a lower interest rate to cover their temporary financial crises. Though a brilliant idea at first glance, the reality is not such: Instead of signing a supplementary credit agreement to cover the additional demand, the banks persuade them to cancel the existing credit by signing a cancellation agreement, and to sign a new contract for the whole amount. This is of course to their detriment because it produces enormous costs: Administration fees, charges and premiums for a new PPI have to be paid and be calculated on the whole amount again. In individual cases, conversion of debt has resulted in additional costs of approximately 5.000€. Since it is very difficult to prove that one has been talked into this, one is not fully aware of the costs, and thus ill- advised consumers are usually obliged to pay those artificially generated costs.

d. Other Problems

Another aspect consumers sometimes tend to neglect is the importance to match the repayment period to the “useful life” that the loan has. As advertisers constantly tell us to enjoy live now and pay later, people tend to indulge in amenities now, but forget about the repayment lurking in the future. However, no one wants to repay a loan for the holidays taken years ago.

ITALY

In Italy the main problem is similar to the Spanish, since the Italian norm as the Greek and Spanish demands a previous agreement arranged "in exclusive right" between the supplier of services and the financial entity.

Article 125, promulgating second paragraph of art. 11 of Directive 87/102, provides that in the case of breach of contract by the supplier, the consumer can interpose an court action against the credit company to obtain the suspension of payments and the restitution of the amount paid, only when there is an exclusive previous agreement between the lender of the credit and the supplier of the goods or services.

Given that it is up to the consumer to prove the existence of such agreement, this has shown to be a sort of “devilish proof”, as Italian lawyers call proofs which are quite impossible to demonstrate, and for the little use they are for the consumer to maintain his rights against the supplier.

In fact, he will be no longer able to suspend payments by his own, a right he would maintain if he were paying directly to the supplier according to article 1460 of the Civil Code. Instead, he will have to complete the payments to the creditor and then bring the supplier to Court asking him for the restitution of the money.

When the supplier has financial problems of his own, or even goes bankrupt, the situation get worse: not only shall the consumer have to begin and win a lawsuit, he will also risk getting to nowhere. In fact, no specific protection is given to the consumer in bankruptcy law, and he will be postponed to a long list of preferred subjects in the distribution of supplier’s money and goods. If their debts are large enough, the consumer will possibly get nothing at all from the whole court proceeding.

However, in some way jurisprudence has tried to amend written law defaults. Both, the doctrine of the contracts linkage (in Italy it is called: “collegamento negoziale”) and its application to the consumer credit contracts are well-established in Italian courts, almost since the sentence number 474/1994 of our Supreme Court, the “Corte di Cassazione”. Now, a contracts linkage can be found whenever a plurality of contracts has a unique scope.

Whenever a contract linkage is established, whatever fact would be relevant for one of the linked contracts, it will produce its effects on both. Italian courts have recognized that, if it is true that article 125 of financial law for acts consolidation regulates a specific case of established contracts linkage by written law, there are no limitations for the judge to individuate, on a case-by-case method, other examples of contracts linkage in the consumers’ credit field.

In this way, the final result has been to add other circumstances, besides the exclusive pre-agreement case, to those which can prove the existence of a contracts linkage in the consumers credit field, and therefore to extend the liability of the creditor for the supplier breach.

However, up until now the problems have been solved neither by the written law nor by jurisprudence. None of the projects of law reform aiming to the extension of the responsibility of the creditor have success in Parliament, also due to the great opposition of the financial companies and all the banking system. Only the last year, when the European Commission presented its proposal for a new Directive concerning the Consumer Credit, it seemed that the solution was near.

Apart from this first problem, however, there are still other more social than legal ones pending. For example, some financial operations use to combine a general credit agreement (which is not designed for specific consumption purposes, and that is commonly used to repay previous debts) with a second contract intended to buy a “card” which should provide different services, usually insurances and benefits. The “card” is manufactured and sold by a different company which is directly linked with the financing one, which obtains double profit. Moreover, it is usually difficult to be sure about the exact nature of the services provided by the card, which often will never be used by the consumer. In this way, the consumer who is in need of money will subscribe a contract with a quite low nominal rate, but will have to buy a service he would never have and which profit will go entirely to the company controlled by the credit entity.

Another problem to be solved is the existence of data-bases which contain information about previous payments arrears, or other elements from which lending companies can assume an individual is a “bad payer” and therefore refuse to grant him/ her credit. If the compilation of such information is useful to the companies, it is still common a situation of “no rules land” where it is very difficult for the consumer to get information about himself. Data protection is regulated in Italy by law 675/1996, which provides that a specific written consent has to be given by a person in order to have his/ her personal data collected by another subject. This consent shall be informed, that is, the person has to be informed about the specific use that will be done of his data (personal filing, marketing, etc.). At present, credit entities always ask consent to facilitate personal consumers´ data to the few that manage huge data-bases free to look into by other credit companies. As a matter of fact, information about bad payers is often incomplete, wrong or not up-to-date: for example, a consumer might have not paid indeed, but for a rightful reason communicated to the company by mail, or for any other reason susceptible to be verified in a lawsuit, as it could be an assumed invalid contract. Very often, whatever the reason could be, the consumer will find himself in a “bad payers” list and he won’t be able to obtain a credit anymore. More frequently, the consumer paid with an unjustified delay, but at least he paid, and again his name still remains in the list of bad payers. The law grants the right to have the personal data removed on request, but in fact it is still a long way and difficult to have this right complied by companies.

GREECE

The consumer credit problems that Greek consumers are faced with are several and varying. In many cases, the credit institutions do not respect the abovementioned terms, however this is not noticed as the majority of the consumers do not actually know what the law provides and what exactly their rights are.
For example, most of the times the consumers do not know, or are not properly informed, that a revocation period is provided by the law. Often they believe that it is an additional benefit provided by the credit institution, given to them preferentially.
Also, another term that is hardly ever respected is the consumers’ right to a reduction of the total cost of the credit in case of an earlier refund. On the contrary, in most cases the credit institution defines a clause against the consumer, specifying that in case of earlier refund the consumer has to bear heavy penalties (the supplier retains the commodity’s ownership).
A very important and problematic element of the current practice in Greece is the case where the creditor's rights, under the terms of a credit agreement, are assigned to a third person, and the consumer is not clearly and specifically informed about this. Therefore, that results in confusion and a serious misunderstanding about who the creditor is: the supplier of the goods/services or the credit institution -usually a bank. The consumers tend to believe that the credited amount is ‘owned’ to the supplier of goods/services.
The Beauty Centres case
Beauty Centre treatments have become quite fashionable in Greece during the last five years. Many new such centres were opened in many cities all over Greece and business was flourishing for most of them.
The most favourite payment practice followed by almost all of those centres is the issuance of a credit card with a set amount of monthly instalments paid to the bank collaborating with the centre in each case. The procedure is as follows:
? The customer agrees to a treatment that will expand over a number of appointments at the beauty-centre.
? The beauty-centre proposes a payment-scheme in monthly instalments through a credit card that will be issued for the client. They offer to undertake ALL THE NECESSARY (AND TIME-CONSUMING) REDTAPE for the issuance of the credit card.
? The customer agrees that this is OBVIOUSLY the best way to deal with the cost of the treatment and signs the necessary papers. Little attention is given to the small-lettered conditions laid down in the bank contract as the consumer’s attention is focused on the treatment, its beautiful results etc.
? The credit card is issued, charged with the whole amount to be paid in monthly instalments.
The serious problems started when one of those beauty-centre chains went bankrupt. All its branch-offices closed down suddenly and thus all treatment programmes were stopped without having being completed and without any previous notice. Some had not even started yet.
All clients were left with credit cards charged with amounts of money that had to be paid, but without having received the treatments.
The associated banks began to demand the money from those clients who either refused to pay and risked facing all dispute related to the bank, or were lost about what they should do.
When consumers began to contact Consumer Associations it was proved that they did not know their creditor was the Bank, due to serious lack of information by the Beauty Centre Company. The company had not informed the client that from the moment the credit card was issued the creditor was the Bank and not the Beauty Centre Company. The company had already received the payment of the full amount from the bank and then the bank demanded it from the client.

MODIFICATION PROPOSAL OF THE EUROPEAN NORM:

The Proposal of Consumer Credit Directive, after the introduction of the amendment proposal of 5 bis to its article 30, has adopted the characteristic of Minimums Directive, unlike its initial exposition of mere harmonization Directive, since it settles down that the Member States will not be prevented to maintain or adopt more extensive consumers´ protection arrangements.

It is also positive the permanent establishment of the rights conferred to the consumer and the guarantor.

The content of the Directive does not imply a significant advance with respect to the (deficient) protection already given by the national legislations (Spanish case). If we put under comparison the content of the Directive proposal and the present Consumer Credit Spanish Law 7/1995, 23 March, we do not find relevant advances related to levels of consumer protection, but quite the opposite: As opposed to the responsibility and consequences derived from the breach of contract by the goods or services supplier, it contains , after the introduction of some amendments, only the possibility of the payment stoppage of the pending monthly instalments after the supplier’s breach.
With the current text of the Directive this situation could even get worse. The Directive - as we will see later- implies a clear setback with respect to the publicity of the credits, content of contracts, information to the consumer, as well as the binding character of that. It does not arbitrate punitive methods for the fulfilment of its resolutions (specifically, information that must be included in the contracts) does not arrange objective and limiting calculation methods related to the indemnifications originating in case of advance reimbursement of the credit and in the unsecured ones that the consumer could incur.

OBJETIONS AND CRITICISM TO THE BODY OF THE DIRECTIVE

It becomes necessary a deep legislative reform in the consumption scope to avoid that in the future, unfortunate events similar to the language academies in Spain take place. Therefore, it becomes necessary a legislation that protects the citizen more and eliminates the legal ties on which the financial entities take refuge to elude the application of the –deficient- consumer protective norm. A detailed study of the body of the proposal of Directive bring us to the conclusion that the claimed protection measures are neither to the level of the hoped protection in an "improvement" text like the present one, nor even imply a reduction of the guarantees that are in the internal legislations of the States members.

Scope of application

The approval of the Directive in real terms, offers a real possibility to elude its application through the simple concealment of the real costs of the credit, being simulated that the credit is free of charge. A fiction is built that the credit is free when, in fact, its costs accumulate as the principal of the credit. For that reason, consumers can not and must not be prevailed of protection by the mere fact that they have been granted a fictitiously free credit (since actually it is never so) Furthermore, because in that way one would be facilitating financing entities the way to elude the protecting measures provided by legislation.
At present, the Spanish norm, after the last reform produced by the scandal of the language academies closing down, establishes that in the case of services of successive realization and continued benefit, they will not be considered free of charge those credits which, even though TAE (Equivalent Annual interest Rate) is equal to zero, their concession entails some type of repayment by the supplier of the services to the lender.

It should be introduced the provision contained in the Germany legislation to consider applicable to these norm those people who withdraw money by means of any financial entity to exercise a profession, if the amount is inferior to 50,000€, they should be contemplated as consumers in this respect.

Publicity

The introduction by amendment of the new article 4 bis corrects the initial writing which implied a clear setback with respect to established guarantees in the national laws (Spanish case).

Although it seems established the obligatory nature to present the basic information (equivalent annual rate, duration, number and amount of monthly terms, and total costs of the credit) in a graphically clear, and visually outstanding form, a contractual sanction that really protects the consumer in case of breach is not predicted.

Previous information

the delivery in writing of certain information to the consumer is established as a duty for the moneylender before concluding the contract.

Also, in order to respect the principle of responsible concession of the credits that are mentioned in the Directive, avoiding an excessive indebtedness, the consumers are compelled to provide information about their patrimonial situation that allows to the moneylender to evaluate their reliability and their solvency for the reimbursement of the credit, being also established the duty of the moneylender to examine the solvency of the consumer before granting the credit.

Protection of the private life

It would be advisable or rather demandable the creation of a registry for those suppliers of goods and services that have incurred in contractual breach incidents, towards trying to avoid that they continue subscribing credits to finance consumption contracts with these agents that breach the contracts.

Information in contracts

1º. – The Article 10 of the Directive related to the information that must appear on guarantee and credit contracts, must establish a punitive clause (parallel to the Spanish Law) that penalizes those financing entities which do not respect the legally established informative minimum content. It implies a setback in the scope of guarantees with respect to national legislations (Spanish case) in which they are established legal and economic consequences to the breach of the legal prescriptions in the matter of contractual information. Italian legislation punishes with the nullity of the contract if there is not included in the contract an analytic description of goods or services object of the financing.

2º. - Continuing with article 10, it would be advisable to complete the information that the same one establishes in the assumptions of variable credits, as it is already being carried out by the national laws (Spanish case). This assumption implies a setback in the consumer protection matters, as it is not compulsory to contractually document the special requirements that must fulfil this type of credits, such as the procedure for the revision of the interest rate, the reference index used, etc.

3º. - It can not result something optional to point out in credit and guarantee contracts the financed good or service. Consequently, article 10 f) must be modified in the sense that it is obligatory to evidence in the contract the object of the financing application, otherwise we will face serious drawbacks to determine the entailment between the credit contract (and guarantee) with the consumption contract.

Redemption right

The redemption term indicated in the article 11,1 should be counted not from the time the consumer receives the signed contract by both sides and he is informed about his right of redemption, as it is stipulated in the Directive, but since the good is delivered to the consumer or the contracted service has begun; because this is the only way to sanction legally the existing entailment between credit contract and the consumption one, providing proper consumer protection. Otherwise, what protection is provided to the consumer if the goods are delivered to him after a month from signature of the credit contract and the characteristics of them are not the agreed in the consumption contract? In addition, they must be eliminated all costs incurred by the mere exercise of the redemption right, and consequently the consumer must not be penalized by this exercise through the charge of interests or another type of fees. Thus, there must be effective evidence of all that in the Directive.

The amendment that introduces paragraph 2 bis is insufficient because it is only limited to cases of "express" consumer exigency of "immediate" delivery of the goods or the "immediate" benefit of any other service, and seriously damages the consumer since the term of redemption finalizes with the goods delivery or the benefit of any other service. Though, thee correct action would be that instead of finalizing then, it began.

Equal reproach deserves the paragraph 3, which says that in case of tied contract to the delivery of a good, excluding the benefit of services, the consumer will be able to terminate the purchase contract until he/ she has received the good. That is, from the moment that he receives the good no longer will be able to exert its right of redemption. In addition, in these cases the consumer will have to pay the interests to the financier for the redemption period; but the moneylender who must reimburse all advance payments that the consumer has paid, does not have to pay any interests, therefore he/she obtains a double benefit. And what is more important, what happens when the moneylender has directly paid to the supplier the totality of the credit requested by the consumer?, Is the consumer that has not received any amount, who must refund to the moneylender the sums received by the supplier by virtue of the credit contract, and still pay interests to him/her?

Credit costs

1º. – It has to be compulsory the publication of the TAE as the only truthful, realistic and objective information of credit costs. 2º. – It is proposed that there is more information facilitated to the consumer in the assumption of variable credits with non official reference rates. In this sense, articles 10 and 14 of the Directive must be modified, imposing an additional obligation of information in these cases, as it is already required by national legislations (Spanish Law). That, as in the previous cases implies a clear setback. 3º. - With respect to the reference rates, it would be necessary that it would only be allowed the use of those rates based on the objective data emanated from the market, and being prohibited the use of those calculated in accordance with the data facilitated by the financial entities. All of this by evident causes of interest by these entities in increasing the reference rates in order to maximize their benefits.

Abusive Clauses

It should be included in article 15, as an abusive clause that by which the lender eludes all responsibility after possible breaches of the consumption contract for which the financing credit was subscribed. That is absolutely necessary, taking into account that the totality of the consumer credits which this Association had access to, have clauses of this type in their general conditions, in our opinion absolutely abusive clauses since they deprive - or they try to deprive- of all protection to the consumer.

Advanced reimbursement of the credit

A new writing should be provided for the article 16 of the Directive text, in the sense of establishing with greater clarity the maximum quantitative limits of indemnification in favour to the financial entity in the case of an advanced reimbursement of the credit, thus later problems of fairness would be avoided. The national laws (Spanish case) go further, and clearly fix the maximum amount that the indemnification can reach in case of advanced reimbursement. For that reason, the Directive instead of exhausting itself in so meaningless concepts, like equity and objectivity, must indicate - as the Spanish legislation does- a maximum quantitative limit to these indemnifications.

Cession of the credit

In the assumptions of cession of the credit, article 17 of the text of the Directive recognizes the consumer right of being able to exert before the new lender the same exceptions and defences that he had before the original lender. From the present writing, that defines as moneylender as the physical or legal person who grants, or is committed to grant, a credit in the performance of his commercial or professional activities, it is deduced that the cession can be between the supplier of goods or services that granted initially the credit, and a financial entity, maintaining the consumer the rights that he had against the first one.

Shared in common responsibility

The introduction of paragraph p bis) of article 2 of the concept "connected credit contract" implies, though scarce, an advance in the protection of consumers, because in spite of the existence of two contracts, one with the supplier of goods or services, and another one for the credit either through him/ her or through a third party, is considered connected when they form an economic unit. The amendment refers to economic unit when there is collaboration between enterpriser and financier while preparing or concluding the credit contract, without any reference to exclusivity, which is already an achievement. But this transfers to the consumer the burden to prove the existence of that collaboration, which can turn out to be extremely difficult. In that sense, the Consumer Credit Spanish Law, after the scandal of the closing down of the English academies, has been modified and at present, in case that services of successive realization and continued benefit are provided the consumer will have the option of arranging the contract of the credit with different financier from which the supplier of the goods and services is tied by virtue of previous agreement, disappearing with it the requirement of the exclusivity.

For that reason, we require that article 19 implies a clear and real regulation of this problem, based on these principles:

1º. - Presumption of entailment between the credit contract and the consumption one, only by the fact that there been arranged a lending contract with an enterpriser different from the supplier of the goods and services.

2º. - The consumer right to immediately suspend the payment of the terms to the lender, in the case of breach of the supplier, is recognized.

3º. - The consumer right to obtain the nullity of the loan contract, once solved the consumption contract by breach, is recognized.

4º. – It is recognized the consumer right to refer – by free choice- to the supplier of the goods or services, or the lender requesting the compensation of the damages caused by the breach of the contract, declaring shared in common responsibility of those to the consumer in any case.

It will only be obtained an effective consumer protection in consumption credit contracts by means of the inclusion of these principles.

In this sense, paragraph 2nd only contemplates the possibility of the consumer refusal to reimburse the credit in the case that justified objections to the refusal of the payment of the goods or the services exists, except when there is a later modification to the acceptance of the credit contract for the acquisition of good or services. This is clearly insufficient, partial and unfair, since the consumer can not request to the financier a total compensation of the damages caused by the breach of the supplier; he can only suspend the refund of the pending monthly payments of the credit. What happens if he/ she has already made all the credit payments when the breach of the supplier takes place? On the other hand, why in case the lender is aware of the later modification of the contract between the consumer and the supplier, could exempted of responsibility?

Breach of the contract

The reference to the possibility of including in credit contracts compensations or remunerations on the consumer, when there are required extrajudicial claims for the return of the credit amount, must be eliminated of article 27. The credit or relating guarantee contracts are denominated adhesion contracts, that is, edited unilaterally by one of the sides. The present editing of this article will offer certain possibility to financial entities (which are the ones that unilaterally edit contracts) to include in their text the consumer obligation to pay an additional amount for out of court claim arrangements compensation. That is not only illogical (any damages indemnification requires their previous accreditation) but it also proves to be absolutely abusive.