The new consumer credit regulations recently published in the Government Gazette are intended to provide for better and more modern methods of carrying out credit transactions in Malta. They are based on the EU framework directives for consumer credit that have as a principle aim the promotion of a common market for credit by establishing minimum Community rules to protect consumers.

The existing EU Consumer Credit Directives are intended to eliminate the differences that exist in the laws of member states in the field of consumer credit and thereby avoid distortions of competition between grantors of credit in the common market.

As a result, an environment has been created whereby consumers are now sufficiently protected throughout the EU, so that they can carry out cross-border transactions with confidence.

Prior to the Directive, most national legislation in EU member states did not deal with consumer credit as a whole but, rather, regulated single aspects of the overall operation and only for particular goods and services. Moreover, new forms of credit had been created for which no legislation existed. Given the relevance that consumer credit has acquired in most European economies, such legislative fragmentation was no longer acceptable. It therefore became necessary to create a unitary legislative body that could be applied to all forms of consumer credit and to all member states.

The regulations will be beneficial to consumers for a number of reasons. Primarily because :

• they safeguard the consumers’ rights to correct and complete information;

• they protect the consumers’ legal interest;

• they provide access to means of redress;

• consumers will be better able to compare products;

• the regulations will introduce a standard way of calculating the annual percentage rate for credit facilities, a key factor used by consumers in comparing products.

Differences of law concerning consumer credit regulations among EU member states can lead to distortions of competition between grantors of credit in the internal market. These differences can limit the opportunities the consumer has to obtain credit in other member states and can affect the volume and nature of the credit sought, and also the purchase of goods and services.

As a result, these differences have an influence on the free movement of goods and services obtainable by consumers on credit, and thus directly affect the functioning of the internal market.

Therefore, given the increasing volume of credit granted in the European Union to consumers, the establishment of a common market in consumer credit will benefit consumers, the grantors of credit, manufacturers, the wholesalers and retailers of goods and the providers of services.

I must say that in the discussions which took place with all those concerned as far as the local adoption of these regulations is concerned, it was government’s priority to strike the right balance between the interests of consumers and those of traders. The consultation process involved, among others, the General Retailers and Traders’ Union, and the Malta Bankers’ Association, the Consumers Association and the Consumers Council.

I believe that if consumer credit regulations are biased in favour of either businessmen or consumers, it would not be beneficial to the economy. If such regulations are biased in favour of businessmen, consumer confidence could fall and negatively affect trade . On the other hand, if such regulations are biased in favour of the consumer, in such a way that businesses are laden with unnecessary burdens, traders might be put out of business and this situation could make way for others to become dominant, due to less competition, and hence abuse their position.

The initiatives of the European Union for a consumer protection and information policy ensure that the consumer is protected against unfair credit terms and that a harmonisation of the general conditions governing consumer credit should be undertaken as a priority. It is very important to underline the fact that differences of law and practice result in unequal consumer protection in the field of consumer credit from one member state to another.

Over the years there has been considerable change in the types of credit available to, and used by, consumers. New forms of consumer credit have emerged and continue to develop. It is therefore necessary that the consumer receives adequate information about the conditions and cost of credit and about his obligations. These regulations improve transparency and comparability of offers, through the comprehensive system of rate calculation (APRC), and ensure effective consumer protection in the light of changing market conditions. The regulations include the Annual Percentage Rate (APR) and a formal requirement that all credit agreements be made in writing, as well as specified terms and conditions.

I would like to emphasise that in order to protect the consumer’s economic interests, it is necessary to ensure that he is provided with specified information regarding the particular transaction about to be made – so that he will be in a position to make an informed decision.

Credit is a complex product, and improved transparency regarding the costs incurred when making this transaction improves comparability. Furthermore, transparency ensures effective competition in the market of providing credit to consumers. Consumer protection is not only for the benefit of consumers; traders can also benefit from this improved transparency, since this could enhance competition in this sector.

With this in mind, the Competitiveness and Communi-cations Ministry is also studying the new proposal on consumer credit regulations, which makes some important changes to the current Directive.

Whereas the present directive allows member states to legislate beyond the minimum requirements it imposes, the proposed amendments would require total harmonisation – prohibiting member states from derogating in any way from the directive’s requirements.

It is hoped that this will eliminate the divergences and facilitate comparison of credit products across borders. The proposal also seeks to address the issue of over-indebitness by placing an obligation of responsible lending on creditors. It is proposed that creditors should have access to member states’ credit-worthiness databases, where defaulting borrowers are registered. There are further developments in the new proposals and before government makes its formal position known, it will continue consulting with all those involved.

I strongly believe that consultation is the way forward in evaluating and introducing such regulations. Naturally, other initiatives will be taken for the consumer to be informed about the rights and duties the credit regulations will bring.

Censu Galea is Competitiveness and Communications Minister