It is very unlikely that the draft European Consumer Credit Directive will delay the implementation of statutory mortgage regulation because the FSA have made it clear that they want the statutory regulation of mortgages and general insurance to commence at the same time with the UK
will be in breech of a deadline set by the European Parliament if this doesn't happen by October 2004.
However, the probability is that in order to comply with this Directive some rules for mortgage regulation will have to
be changed as early as 2006, which presumably means that a new Consultation Paper will need to be issued soon after statutory mortgage regulation starts.
This is clearly not sensible and will make it more difficult for mortgage lenders and intermediaries to decide on their long term plans.
If the European Consumer Credit Draft Directive is implemented as currently proposed it will be an unmitigated disaster for many UK residents. It proposes that anyone who wants to utilise a previously arranged credit facility, which is effectively what anyone with a flexible mortgage has, will not be able to do so without first getting advice from their lender.
Taking a one month payment holiday or underpaying on a mortgage or using a borrow back or drawdown facility will all be caught by this Directive as currently drafted. It appears this could even apply to overdrafts, flexible
loan facilities and credit cards and thus anyone whose current account is overdrawn or wants to use a credit card will not be able to use their debit or credit card or write a cheque, even for £1, without first speaking to their bank or card issuer to get advice on whether it is wise to utilise a pre agreed facility.
This will obviously be completely impracticable, even during normal working times, and would increase costs so much that lenders would effectively have to decide between increasing the cost of flexible mortgages and other
flexible credit facilities to a completely uneconomic level or cease offering such products. One might have more confidence that such obvious nonsense as is proposed in this Directive would not be implemented if it had
been put together quickly without much research, but The European Commission has been working on this Directive for several years.
The UK is far more advanced than anywhere else in the EU in offering flexible mortgages. Indeed as far as I am aware flexible mortgages are not available anywhere else in the EU except in Ireland. The European Commission
appear to have taken the view that all UK consumers are too stupid to use facilities such as flexible mortgages sensibly without getting advice each time they increase their borrowing, but interestingly this is completely at
odds with the FSA's view that providing consumers are given comprehensive information on the borrowing options available to them they will be able to make good decisions without advice.
National and Supra National Governments should be working towards making sure consumers have adequate protection without increasing costs disproportionately and stifling innovation. This Directive assumes all consumers have an IQ of 0 and if implemented as currently drafted it will
produce very significant consumer detriment, presumably the exact opposite of what is intended. Unfortunately the UK can't opt out of Directives such as this which are inappropriate in the UK and so the best hope of getting
these harmful proposals dropped or amended is for other interested parties to join the CML in making very robust comments about this draft Directive.
While it is in draft form there is still hope and consumers, the media and trade interests can all help in this battle by making their views known to both the UK and European Governments.
