In recent years, consumer credit in Europe has grown significantly. To ensure a more transparent, secure, and fair market for consumers and lenders, the European Parliament has implemented a series of legal reforms that establish new requirements for operating legally in this sector.
Directive (UE) 2023/2225 of the European Parliament and Council, of 18 October 2023, on credit agreements for consumers and repealing Directive 2008/48/CE (the Directive), entered into force on 19 November 2023. However, Member States have until 20 November 2025 to transpose it into national law and until 20 November 2026 for its full implementation.
Requirements for consumer credit lenders and brokers
- Registration and supervision: One of the major changes introduced by the Directive affects all consumer credit lenders and brokers. Following its transposition into Spanish law, these entities shall be subject to formal recognition procedures and registration and supervision mechanisms established by the Bank of Spain. Therefore, many non-credit financial entities must obtain authorisation and/or register with the Bank of Spain to operate legally. However, this requirement does not apply to credit institutions, payment institutions, or electronic money institutions, as they are already subject to specific regulations.
- Consumer creditworthiness assessment: Before granting a loan, lenders must assess the applicant’s financial capacity to ensure repayment obligations. This examination includes verifying that the applicant has a stable and sufficient income to cover the agreed-upon instalments.
- Pre-contractual information: Lenders must provide consumers with comprehensive information about the loan terms, free of charge and before signing the contract. This information includes the total loan amount, contract duration, annual percentage rate of charge (APR) and any applicable fees.
- Right of withdrawal: Consumers have 14 calendar days from the contract signing to withdraw without justification or penalties.
- Transparency in commissions and fees: Lenders and brokers must disclose any fees or commissions charged to consumers.
- Obligation to act in the consumer’s best interest: Lenders must not recommend financial products that are unsuitable for the consumer or that prioritise their interests over those of the client.
- Transparency in advertising: Any advertising related to consumer credit contracts must be clear, concise and non-misleading. It must include essential information such as interest rates, the APR, and other relevant costs.
- Supervision and penalties: Lenders will be subject to regulatory oversight to ensure compliance with current regulations and consumer protection laws.
Conclusion
This regulation will significantly impact countries like Spain, where consumer lending by non-credit institutions was not considered a restricted activity. Previously, companies without a banking license could offer consumer loans with relative ease.
The new Directive aims to enhance transparency in the financial market and protect consumers from abusive practices. Beyond ensuring legal compliance, this regulation is expected to strengthen consumer trust in the system.
Consumer credit lenders and brokers wishing to continue operating in Spain must adjust their registration and authorisation processes accordingly. Therefore, staying informed about legislative updates is essential to ensure compliance with all legal requirements.
If you need additional information regarding the new requirements for consumer credit lenders in Spain,
