The Mortgage Credit Directive(1): A New Challenge For Luxembourg’s Retail Bankers?

GENERAL OVERVIEW

The Mortgage Credit Directive ("MCD") came into force on 21 March 2014 with the overall aim to create an EU-wide single residential mortgage credit market with a high level of consumer protection. Such legislative intervention is to be considered as a response to the financial crisis that showed that irresponsible behavior by market participants can undermine the foundations of the financial system, leading to a lack of confidence in particular on the part of consumers.

The MCD is thus very oriented towards the protection of consumers against excessive indebtness by developing a more transparent, efficient and competitive internal market, through consistent, flexible and fair credit agreements relating to immovable property, while promoting sustainable lending and borrowing and financial inclusion2.

Scope

According to article 3, the MCD applies to:

credit agreements secured either by a mortgage or by another comparable security commonly used in a Member State on residential immovable property or secured by a right related to residential immovable property; and credit agreements the purpose of which is to acquire or retain property rights in land or in an existing or projected building. Regarding the negative scope of the MCD, there are on the one hand a range of agreements that are explicitly excluded and on the other hand, Member States may decide on a discretionary basis not to apply the MCD to certain other products, including credit agreements related to a purchase for rental use, credits granted to a restricted public free of interest or at lower than market rates as well as bridging loans3.

The scope ratione personae of the MCD includes creditors, credit intermediaries and appointed representatives4 (hereinafter collectively referred to as the "Creditors").

MAIN PROVISIONS

With the objective of an efficient protection of the consumer when concluding a credit agreement falling under the scope of the MCD, the latter addresses a series of obligations comparable to those provided for by directive 2008/48 EC on credit agreement for consumers5, which may be presented as follows:

Pre-contractual requirements: The consumer must be given personalized information without undue delay (after having supplied information on his needs, financial situation and preferences) and in good time before he is bound by any credit agreement or offer. Such information must in addition be given in a prescribed form, the European...