"The Consumer Credit Directive or CCD, in force from February 2011, is set to change the way dealers promote their finance offer.
When it comes to dealing with financial services, credibility is all important.
Dealers need to know and fully understand the CCD requirements and how they affect their customers.
Many finance companies are initiating the changes before the February deadline, so the way in which dealers sell finance is set to change in the forthcoming months.
So how does this affect motor dealers?
Primary changes include:
• The customers ‘right of withdrawal’
• Details of the customers ‘pre-contractual information’
• The customer’s ability to make ‘early/partial repayments’
• Information required in order to provide ‘adequate explanations’
• Affordability and the ‘assessment of creditworthiness’
The directive covers almost all types of consumer credit with balances from €200 to €75,000 or £160 up to £60,260.
1. Right of Withdrawal
Customers will now benefit from a right to withdraw from their credit agreement. They don’t have to offer any explanation and have 14 days in which to formally make this request.
The right to withdraw forms a kind of cooling off period in which the customer can change their mind if they decide that the credit agreement is not suitable after all.
This does not mean that they can return the vehicle. If the customer chooses to withdraw from their agreement, they must repay the amount of the credit plus any accrued interest and then find some other means of funding their car purchase.
2. Pre-Contract Credit Information
Whilst the pre-contract information itself is very similar to that which dealers are already providing, the directive is very prescriptive about the way in which this document is laid out, stipulating that all pre-contract Information follows the layout of a SECCI, the Standard European Consumer Credit Information formwork.
This is principally to help customers compare information from different lenders.
3. Partial Early Settlement
Effectively, with a view to reducing the balance owed, the customer is now able to make one or more additional, lump sum payments at any point during the agreement. The credit agreement is not being settled off by the payment, the early payment is just being used to reduce the balance outstanding.
The customer must give notice to the lending company of their intention to make any partial payments which can be given verbally or in writing.
The customer can choose whether to reduce the term of the agreement or the monthly repayment, or a combination of the two.
4. Pre Contract Explanations
Before a credit agreement is made, the creditor is required to provide the borrower with an adequate explanation of the key points of the agreement, they must also advise the borrower to consider the pre-contractual information and, where this is disclosed in person, that the borrower can take it away.
They must give the borrower the opportunity to ask questions about the proposed credit agreement, and they must also advise the borrower how to ask the creditor for further information and explanations.
It’s a requirement that some of the information is offered verbally and these sections will be highlighted on the document.
Delivery of this information will fall to dealership personnel and must be applied in all cases.
5. Assessment of Creditworthiness
Okay, so how do the CCD requirements affect those promoting dealer finance in the motor trade when it comes to affordability?
Well, there are three main requirements within this part of the directive.
Dealers need to make the customer aware of the breakdown of repayments, they need to ask the customer to consider whether or not they can afford them and they need to ask the customer to consider any potential future changes in their circumstances which could affect their ability to maintain these monthly repayments.
For ease, this will invariably be covered off as part of the pre-contract explanations however it is important that this additional stage is completed.
Implementation of the Consumer Credit Directive requirements will form a fundamental part of how dealers promote their finance offer at point of sale.
Further information is available at the BIS website.
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