Spanish Law 16/2011 came into force on 25th September and implements the new European laws with regard to consumer financing as per Directive 2008/48. The objective of the Directive is to ensure that there is more information, transparency and assistance for consumers with regard to offers for financing the purchase of products and services. The new law applies to all credit arrangements over €200 and below €75,000.
The new legislation will require a prior assessment of the credit worthiness of the potential client and obliges financing companies involved in the offer of credit to provide a clear and complete example of the annual percentage rate payable.
In its preamble, the Directive states ‘In order to enable consumers to make their decisions in full knowledge of the facts, they should receive adequate information, which the consumer may take away and consider, prior to the conclusion of the credit agreement, on the conditions and cost of the credit and on their obligations. To ensure the fullest possible transparency and comparability of offers, such information should, in particular, include the annual percentage rate of charge applicable to the credit, determined in the same way throughout the Community. As the annual percentage rate of charge can at this stage be indicated only through an example, such example should be representative.
The main initiatives of the new legislation may be summarised as follows:
1) Any advertisement concerning credit agreements shall include the following information:
- The borrowing rate
- The total amount of credit
- the annual percentage rate of charge
- if applicable, the duration of the credit agreement
- in the case of a credit in the form of deferred payment for a specific good or service, the cash price and the amount of any advance payment;
2) In the case of credit intermediaries, all fees and ties with the credit provider must be provided for in the advertising and in the documentation provided to the consumer. The fees for the credit intermediary must be included in the APR quoted to the consumer
3) Compensation for early repayment of fixed rate loans may not exceed 1% (or 0.5% if less than a year remains on the fixed rate) of the amount of the credit repaid early. A threshold of €10,000 has been created under which early repayment fees will not be charged in any one year which will help to provide motivation to consumers to repay early when the opportunity arises. Certain exceptions may be provided by Member States.
4) The consumer has a fourteen day cooling-off period to relinquish the contract, without the need to provide any motive for wishing to do so. The money loaned should be returned within 30 days of the date in which the credit company has been informed of the decision to relinquish the contract. There is also a requirement to pay any interest accumulated to that date on the capital loaned.
The hope of the European Commission is to increase cross-border trade in credit and while it seems unlikely that the level of trade will increase due to other issues there is an obvious benefit to the consumer in providing clearer information with a cooling-off period and a chance to pay off a loan early.