New credit legislation brings no clarity for consumers

14 June 2010

Despite assurances following regulatory failures, the government has again failed to adequately prioritise consumer interests, said legal rights group FLAC today. This followed a low-key implementation of a European Union directive into Irish law which should provide better protection for consumers borrowing money in Ireland.

The organisation was commenting on the enactment of the new consumer credit directive by regulation signed by Minister Brian Lenihan late last week. "This is a very important piece of law that will affect every consumer who plans to avail of credit in this country. Nonetheless, there has been very little forewarning of the proposed changes, nor is there consumer-friendly information available yet on this new law," said Paul Joyce, Senior Policy Researcher with FLAC.

According to the organisation, the existing 1995 legislation is already complex. The new regulation is being superimposed on this structure, making the law very difficult to decipher.

"To understand their rights, consumers will have to look at the 1995 legislation, which is substantial, alongside the extensive new regulation. The consumer would have been better served by a thorough review of the existing legislation followed by a unified, comprehensive statement of the law. In essence, people will not be able to easily understand what their new rights are when borrowing money. This is not good enough, given recent events in this country," said Mr Joyce.

Below is a FLAC statement on the new directive which lays out the organisation's position and calls for specific actions so that consumers will be aware of their new rights and duties:

FLAC statement on the new Consumer Credit directive - Where does it leave consumers?

On Friday 11 June, the revised consumer credit directive of the European Union was transposed into Irish law by way of a regulation. In other words, the new provisions become law without any discussion, debate or explanation in the Dail or Seanad.

What will this mean for consumers of financial services in Ireland?

Precisely because the directive is being transposed in this way, it is very difficult to be sure at this point. What is certain is that the existing Consumer Credit Act 1995 (which itself transposed the original consumer credit directive) will be substantially changed.

How accessible is this legislation?

The existing legislation is already complex and hard to read. It now appears that there are no immediate plans to consolidate the new regulation into the existing Act, i.e., to have one piece of legislation with all the changes incorporated into it so that it can be read as a single text.

How does this affect the average consumer?

Some examples of how the new regulation might affect you as a consumer:

  • The next time you apply to borrow money from a bank, finance house or licensed moneylender, the lender will be operating new rules in terms of the information the potential borrower is entitled to receive before the loan is agreed and the information that must be included in the credit agreement when the loan is made.
  • New rules will also be in place on your right to withdraw from the agreement where you might change your mind (the 'cooling off period').
  • It will affect your right to terminate the loan agreement early and pay a very limited amount of future interest to the lender.
  • It will also affect how credit unions can lend, although they may have fewer new regulations imposed due to their social lending remit.

But surely nobody is borrowing now anyway?

Financial institutions may not be advancing much credit at the moment but these new rules governing the provision of credit are likely to be in place for quite some time and will affect ordinary people in a very concrete way. They stem from the recognition that both the forms and the marketing of credit have changed and developed in recent years and consumers therefore need enhanced information and protection when borrowing money.

FLAC is critical of how this very important legislation has been introduced and how it will be presented to consumers.

It is particularly unfortunate that the government has chosen to implement these changes in Ireland by the least transparent method available to them, leaving an immediate information vacuum when the purpose of the directive is to do the opposite.

FLAC calls on the government to publish clear and user friendly information on the new provisions as soon as possible and to produce one codified version of the consumer credit legislation as a matter of priority.


Editors' notes:
1. FLAC (Free Legal Advice Centres) is an independent human rights organisation dedicated to the realisation of equal access to justice for all. It campaigns through advocacy, strategic litigation and authoritative analysis to contribute to the eradication of social and economic exclusion.
2. The Regulation came into operation on 11 June 2010. The text of the new statutory instrument is available online.
3. The Consumer Credit Directive (CCD) was adopted by the European Council in May 2008, with a date for completing the transposition set for June 2010 for all Member states. You can read the revised European Consumer Credit Directive online (in PDF format).
4. The Department of Finance published a consultation paper on the transposition in March 2009 as well as FLAC's submission to that consultation.