Brussels – The European Commission’s plans to bring forward a proposal for a Directive for the regulation of mortgage credit in Europe in early 2011 are a move in the wrong direction, according to the European Federation of Building Societies (EFBS). The Federation notes that the Commission has finally recognised that the approach pursued so far – namely the EU-wide promotion of Anglo-Saxon financing models as a means of stimulating growth – has failed. However, “Proposing new EU rules at this stage shows that the Commission has still not learned the lesson of the financial crisis”, says Andreas J. Zehnder, the Federation’s Managing Director, in advance of a hearing of industry associations hosted by the European Commission on 14 September 2010. The fact is that in Member States such as Germany and France, where there is a preference for long-term fixed-interest credit and a high owner’s equity share, customers have not faced any problems at all. “This is not a matter for the Brussels legislators”, says Zehnder. “Instead, national governments and supervisory authorities should take action wherever the credit institutions have failed to apply sound lending practices of the type that have always been applied as a matter of course by EFBS members.”
In the Federation’s view, the ideas outlined in a working paper on responsible lending and borrowing in the mortgage sector, published by the European Commission in July 2010, would not even adequately inform consumers about the risks associated with variable-rate loans or with credit arrangements in a foreign currency, for example. Instead, in Zehnder’s view, the lending process is likely to become even more mired in bureaucracy, with clear disadvantages for consumers. For example, the European Commission’s idea to introduce a 10-day reflection period between the provision of pre-contractual information to the customer and the conclusion of the credit agreement conflicts with all the efforts made by the member institutions to approve customers’ credit applications as quickly as possible, assuming that they are creditworthy. In calculating the effective annual interest rate, too, the method applied must be mathematically sound, warns Zehnder. For example, the prevailing view in Commission circles that the informative value of the effective interest rate would be increased by including all the costs associated with the loan, such as land registry and notary fees, is erroneous. If the effective interest rate is to fulfil its proper purpose – namely to make it easier for consumers to compare the prices of various offers – it must be restricted to costs levied by the lender. “We vigorously reject any rules for calculating the effective interest rate that could result in legally prescribed misleading of consumers”, emphasises Zehnder.
Contact:
European Federation of Building Societies (EFBS)
Rue Jacques de Lalaing 28
1040 Brussels, Belgium

Phone: +32 2 231 03 71
Fax: +32 2 230 82 45
Email: info(at)efbs.org
URL: http://www.efbs.org/