Stephen Haddrill to strike note of caution at Eurofinas event

When EU member states start to implement the revised Consumer Credit Directive (CCD2), due to come into law next year, they must pay close attention to the extent to which new regulations could limit market opportunities for lenders and restrict the options available to those who depend most on credit for major purchases.

They can also learn from the UK’s experience, where lenders have seen how “regulatory risk can be amplified by a complaint culture,” according to Stephen Haddrill, Director General of the Finance & Leasing Association (FLA).

Haddrill will be chairing a session at the forthcoming Leaseurope and Eurofinas Annual Conventions on October 3 & 4 exploring trends in consumer finance regulation, and says that while continental Europe has a less developed consumer compensation movement than prevalent in the UK (where claims management companies are more active), that is changing.

CCD2 addresses a number of areas of concern which have emerged largely as a result of the rise in digital services since the original legislation in 2008.  The directive introduces new regulations relating to “buy now pay later” services; crowdfunding; leasing agreements that include a purchase option that can be exercised at the consumer’s discretion; assessments of credit-worthiness including the use of AI technology; high interest rates; and providing consumer information and education.

The issue Haddrill highlights is that “we don’t want lending to people which is harmful, but at the same time there is a fear that people are being excluded who don’t need to be.  What we need to an approach on access to credit that promotes financial inclusion.”

But for lenders to take advantage of the new opportunities offered by digitisation and AI, they need regulators to offer “consistency and predictability”, Haddrill argues. Uncertainty or contradictions about how legislation will be interpreted may mean that lenders are reluctant to use new technology to build products for consumers in sectors such as the sub-prime market, for fear of running foul of new consumer rules.

Haddrill points out that the Financial Conduct Authority (FCA) review of discretionary commission arrangements (DCA) is an example of how a regulator had to step in to ensure consumer protection and to maintain the integrity of the market in the face of an avalanche of consumer complaints prompted by third party involvement.

“With a lot of lenders in that market facing claims, and cases going through the courts, that could have been very de-stablising,” he said.

While the FCA has announced an extension  to the deadline for its review to May 2025, this does not mean the regulator plans a wide-scale compensation package, with Haddrill pointing out that the regulator has specifically said the motor finance review is not comparable to the earlier PPI scheme.  

“But it’s clear that heavy duty regulation and the risk of complaints, fuelled by a compensation culture, can restrict access to credit for consumers in a way which is not necessarily justified,” Haddrill maintained.

From the UK’s experience, there is a need to get a balance to create a level playing field, which Haddrill says is not just about the rules, but also how they are interpreted and how they are supervised.

“It needs to be much more about co-operation between firms and regulators so there are no surprises on either side. That way lenders can take advantages of the opportunities coming from digitalisation and AI to develop new products and operate more efficiently,” he said.

Find more details and registration information here for the Eurofinas session on:

Consumer credit – State of play and outlook: What are the main drivers and strategies that every lender will need to develop? Are there new expectations from regulators and consumers regarding the role consumer finance should play, is the rulebook in need of further change and what will enforcement look like over the coming years?