Authored by Ludwig Fischer and Thomas Scharrenberg
Writing consumer finance business in the past has always required special procedures and documentation in order to comply with local legal provisions for consumer protection. From this year these requirements will be further tightened in most European countries.
In 2010 all EU members are required to adopt the EU Directive 2008/48/EC on credit agreements for consumers. The intention is to increase consumer protection by requiring the financial services industry to provide a comprehensive set of standard information to the customer according to SECCI (Standard European Consumer Credit Information ) prior to signing the contract. Not only that but in the case of a credit decline based on credit reference agency information, the industry will be required to provide details on the reasons for the decline to the consumer.
Although the legislative procedures are not finalised yet in many countries, the financial services industry will certainly face an additional administrative burden when doing business with consumers. In Germany for example the BDL (German Leasing Association) legal sub-council has put together a 7 page document with detailed procedural descriptions and template recommendations to assist lenders in complying with the expected new rules.
The
industry is required to change quickly as the new rules will have to
be in place soon, for example June 2010 is the expected go live date
in Austria and Germany. As
a consequence several German leasing companies which have previously
served the consumer market on an opportunistic basis have now decided
to exit the consumer finance market completely in order to avoid the
additional bureaucracy and costs. Will the gap be filled by existing lenders or is there an opportunity for new entrants?
However the impact of this
legislation is more significant than that. According to the EU Directive these extended consumer rights will also have to be applied to founders of
new businesses with the result that the financial services industry in Germany is about to
pull back from this market as well. At a time when lenders are being
urged by governments - and the EU - to lend to the SME sector, here
is legislation being imposed which will have precisely the opposite
effect! For those lenders that remain in the market, less competition should provide the opportunity to increase margins provided that this is not offset by the cost of legislative compliance.
For more information on legislative changes in Germany contact Ludwig Fischer on +49 7073 913 265; e-mail ludwig.fischer@invigors.com, or Thomas Scharrenberg on +49 212 64285520; e-mail thomas.scharrenberg@invigors.com.
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