COVID-19 Consumer credit measures: Temporary reduction of the maximum costs consumer credit

On 19 May 2020, the Dutch Secretary of Finance published a consultation on the Draft Decree on temporary reduction of credit costs (Conceptbesluit tijdelijke verlaging kredietvergoeding (the “Decree”)). The consultation period ends on 3 June 2020. In his letter to the Dutch Parliament of 18 May 2020 (the “Letter”), the Secretary of Finance announced that he planned to send the Decree to the market for consultation. The Decree introduces a temporary reduction of the maximum credit costs for consumer loans  as a response to the corona crisis. The maximum percentage of credit costs charged to consumers will be adjusted so that providers of consumer credit may charge a maximum of 10 percent credit costs on an annual basis (the annual percentage rate (“APR”)). Currently the APR is still 14 percent on an annual basis (statutory interest of 2 percent plus the maximum increase for credit costs of 12 percent). For the time being, the intended reduction will in any case be effective until the end of 2020, but it is possible to extend this period.

COVID-19

The decision to introduce the Decree was prompted by the fact that the corona crisis led to a decrease of and sometime a complete loss in income for many consumers, causing payment problems. Various banks have recently responded to the call to (temporarily) reduce the interest charged for overdrafts. A number of consumer credit providers have also responded to this call, but a number of providers still maintain the maximum APR of 14 percent. This is considered undesirable. Partly on the basis of research carried out by NIBUD (National Institute for Family Finance Information), a temporary reduction of the APR is considered desirable and appropriate. This with a view to improving consumer protection.

Temporary reduction of maximum credit costs: proposed legislative amendments

The Decree will lead to an amendment of art. 4 of the Credit cost decree (Besluit kredietvergoeding). The maximum percentage of credit costs of 12 percent will be reduced to 8 percent. Article 15 of the Credit cost decree will lapse. This article concerned a transitional arrangement for credit transactions entered into prior to the previous reduction of the APR in 2006.

Which credits

The Decree will apply to (a) new consumer credits and (b) new draws under existing revolving credit arrangements. The current APR will continue to apply to consumer credits already concluded where the outstanding balance expires.

Temporarily

The reduction of the maximum credit costs will apply until the consequences of the corona crisis allow it to return to the current level. However, the Secretary of Finance indicated that the results of the research into a potential permanent reduction of the maximum credit cost will be taken into account in determining whether such a return would be desirable.

Permanent reduction of maximum credit compensation

In his Letter, the Minister of Finance announced that in the coming months further research will be conducted on the possibility and the desire to introduce a permanent reduction of the maximum credit costs. Technological developments, the development of market interest rates and the statutory measures and measures taken by the consumer finance sector itself focusing on prevention over-crediting and payment problems will be taken into account. Also the possibilities to differentiate with maximum costs of credit depending on e.g. the credit amount, credit product, and the tenor will be part of the proposed research. The Secretary of Finance stated that “"the starting point in determining the maximum percentage of credit costs will be the protection of consumers on the one hand and the possibility for consumer credit providers to continue offering products for a reasonable fee on the other." Next steps regarding a permanent reduction of the percentage of credit costs are expected to be announced end of 2020. The Ploum Banking & Finance team will keep you informed in the coming period of further developments with regard to the maximum credit compensation. If you have any questions as a result of this news update, please contact Matthijs Bolkenstein (m.bolkenstein@ploum.nl or +31646630866) or Lucas Lustermans (l.lustermans@ploum.nl or +31619850096).