The changes will significantly modernise the regime and enhance consumer protections.
The EU has adopted a new Consumer Credit Directive, known as CCD2, which repeals and replaces the existing EU consumer credit regime under the 2008 Directive. Member States are required to transpose CCD2 by 20 November 2025, and apply the new measures from 20 November 2026. CCD2 aims to keep pace with the digital transformation that has led to new credit products and services being offered which may currently be outside the scope of regulation, and different consumer behaviours and expectations. It is also intended to significantly enhance consumer protection, and to reduce in some respects the current lack of harmonisation across Member States that has resulted from unclear provisions in the 2008 Directive.
CCD2 makes wide-ranging changes to the existing regime, with the European Commission taking the view that the best way forward was to proceed with a wholesale revision of the consumer lending framework rather than continue to make incremental amendments to the 2008 Directive. In this blog post we outline some of the key changes to the regime.
The current regime captures credit agreements between €200 and €75,000. CCD2 will expand the scope of the regime to capture all credit agreements up to €100,000, with no minimum threshold. This change will mean that low-value loans fall within scope, due to concerns about short-term, high-cost credit agreements not being caught. Agreements over €100,000 will also be captured if they are an unsecured loan for home improvements.
CCD2 will bring into scope credit agreements under which the credit is granted free of interest and without any other charges, and agreements under which the credit has to be repaid within three months and only insignificant charges are payable, which is designed to capture buy-now-pay-later (BNPL) products. Additionally, CCD2 will capture hiring or leasing agreements with an option to buy, loans offered through crowd-funding platforms, and overdraft facilities under which the credit has to be repaid within one month. There is an exemption for deferred payments that do not involve a third party (e.g., those without a third-party financer) and under which payment is executed within 50 days from the delivery of the goods or provision of the service (reduced to 14 days for large online suppliers), as it is recognised that invoicing should be permissible.
CCD2 establishes stricter advertising rules, providing that advertising communications must be clear, fair, and not misleading. The rules specifically prohibit wording that may create false expectations regarding the availability or the cost of credit, or the total amount payable. Advertisements will need to contain a clear and prominent warning to make consumers aware that “borrowing money costs money”. Member States will be required to prohibit certain advertising practices, such as encouraging consumers to seek credit by suggesting it would improve their financial situation. Member States will then have the option to prohibit other advertising practices, including those that highlight the ease or speed with which credit can be obtained.
The new regime updates requirements to ensure that information presents suitably on digital devices such as mobile phones. Various key information will need to be presented on the first page of the Standard European Consumer Credit Information document so that consumers can see all key information at a glance (even on the screen of their phone). If this will not fit on one page, it can extend to two pages at most, although certain information must feature on the first page. CCD2 also strengthens requirements for credit information to be presented in a clear and understandable manner. If pre-contractual information is provided less than one day before the consumer is bound by the credit agreement, creditors will need to send a reminder to the consumer of the possibility of withdrawing from the agreement. If consumers are offered special pricing based on automated decision-making, they will need to be informed that the price is personalised based on automated processing so that they can take into account the potential risks.
Under CCD2, the provisions on creditworthiness are strengthened, including by adding more detail around the substance of the creditworthiness assessment. Creditors will only be permitted to extend credit if the creditworthiness assessment has a positive outcome. If the creditworthiness assessment involves automated processing, consumers will have the right to obtain a meaningful, comprehensible explanation of the assessment made and of the functioning of the automated processing used, as well as the right to request a review of both the assessment and the lending decision. Member States will be permitted to set limits on loan-to-value or loan-to-income ratios.
CCD2 will give consumers the right to terminate a credit agreement within 14 days, without giving any reason. CCD2 will also prohibit product tying, while still permitting product bundling where appropriate, such that if a product is purchased with linked credit and either the product or credit is returned or terminated, the other linked agreement will also terminate. Practices such as the use of pre-ticked boxes or inferring a customer’s agreement to enter into a credit agreement will not be permitted. Equally, unsolicited granting of credit, including, for example, unilaterally increasing a consumer’s credit limit, will be prohibited.
CCD2 will also introduce measures to help consumers in financial difficulties, requiring creditors to proactively address credit risk at an early stage and, where appropriate, exercise reasonable forbearance before initiating enforcement proceedings. Member States will be left to introduce specific measures in relation to hard caps to prevent excessively high borrowing rates, APR, or total cost of credit, and to set these caps at an appropriate level for their national market.
Conduct and Organisational Requirements
Minimum knowledge and competence requirements will be introduced for staff. Creditors must also manage the potential conflicts of interest arising from how they remunerate staff who are responsible for creditworthiness assessments, for example by providing that remuneration is not contingent upon the number or proportion of successful credit applications.
While CCD2 requires Member States to introduce rules covering the areas set out above, a number of key areas either leave the detail of the requirements up to individual Member States or enable Member States to implement their own approaches. These include:
- the precise content of warnings in advertising;
- the form of credit agreements;
- the formality requirements for concluding credit agreements, for example whether electronic signatures are acceptable;
- the specific wording of some of the required disclosures; and
- interest rate caps.
Firms providing consumer credit will need to become authorised or registered in the Member States in which they provide consumer credit. Since CDD2 does not include any passporting rules or harmonised rules on its application and ongoing supervision, there will likely be a considerable degree of divergence between Member States. Credit, payment, and e-money institutions may be able to rely on their existing authorisations and passporting rights in relation to credit activities, which are considered sufficient for the purposes of CCD2, but such institutions must still comply with the other CCD2 requirements.
The UK is currently undertaking a review of its consumer credit regime, including provisions that implemented the 2008 Directive. This review is part of the government’s wider Edinburgh Reforms. HM Treasury has carried out an initial consultation on the strategic direction of reforms to the Consumer Credit Act 1974 and aims to publish a second-stage consultation in 2024, which will set out further detail. A key focus will be on modernising the UK regime to better align with modern-day technology and consumer practices, much in line with the overarching aim of CCD2. As the UK regime is complex (and goes far beyond the EU regime), it will take a number of years to complete the reform, so any changes may not be implemented much in advance of the CCD2 changes.
However, the FCA has already implemented measures in the UK to address some of the concerns targeted by CCD2, such as introducing a price cap on payday lending, measures to help protect borrowers in financial difficulties, and the new Consumer Duty, which aims to enhance consumer protection and ensure good consumer outcomes. Further, the UK government is also in the process of bringing BNPL into the scope of regulation (see this Latham blog post for more information), although the timing of this change remains uncertain.