Will the Directive 2014/17/EU on mortgage credit protect consumers in the next economic and or financial crisis?
| Author | M. Elvira Mendez Pinedo |
| Position | Professor of European Law (EU and EEA law) at the Law Faculty of the University of Iceland |
| Pages | 564-584 |
Will the Directive 2014/17/EU on mortgage credit protect consumers
in the next economic and/or financial crisis?
Professor M. Elvira MENDEZ-PINEDO
1
Abstract
The Directive 2014/17/EU on mortgage credit agreements for real estate properties
(Mortgage Credit Directive or MCD) reflects the classic tension in the European Union (EU)
between the goal of attain ing a European single mortgage credit market and the obligation
to provide a high level of consumer protection . The classic approach of EU law to solve the
tension is to find a balance between those aims through the interaction of public/private law.
The article starts with a summary of the most important choices done by the legislator (ex-
ante information duties and responsible credit) and essential consumer right. It follows with
a critical assessment of the MCD. The methodology of this study is both descriptive and
analytical, law is considered not only a normative system but also a set of policy instruments
influenced by other disciplines (ie. economics). The findings lead both to optimism and to
criticism. Although the European harmonization represen ts a further step ahead in the area
of financial services and consumer protection, some critical questions are still forgotten or
left aside. The most important qu estion remains unanswered, whether the MCD will protect
consumers when the next economic/financial crisis inevitably arrives. The implications are
clear: more research and better policy are needed.
Keywords: mortgage credit agreements, EU law, EEA, consumer information,
protection of consumer´s rights, responsible lending.
JEL Classification: K12, K25, K33
1. Introduction
Mortgage credit is a financial service different from other kinds of banking
and financial activities provided to individuals/consumers: consumer credit,
investment services and/or payment services. The long expected “Mortgage Credit
Directive” (MCD) or Directive 2014/17/EU
2
was adopted by the European Union in
2014 in the aftermath of serious financial, economic, euro and a sovereign-debt crisis
affecting the periphery of Europe since 2008. This article focuses on the European
Union and European Economic Area (EU/EEA) regulation on mortgage credit, that
is to say residential immovable property credit agreements. We explore its legal
framework and summarize its goals (access to finance and substantive protection) as
well as comment some detailed rules in two selected areas: credit worthiness
1
M. Elvira Mendez-Pinedo - professor of European Law (EU and EEA law) at the Law Faculty of the
University of Iceland, mep@hi.is.
2
agreements for consumers relating to residential immovable property and amending Directives
Volume 8, Issue 2, June 2018 Juridical Tribune 565
assessment (debtors´ potential solvency) and actions following breach of mortgage
credit agreement (reasonable tolerance towards debtors´ payment difficulties).
The historical context of the directive is important since it explains some of
the values behind European harmonization. Following the financial, banking,
economic and euro-crisis from 2008, the attitude of the EU towards financial markets
has evolved from broad supervision and self-regulation towards greater control of
risks. In a parallel way, the new Directive inaugurates somehow a shift towards a
new paradigm of “responsible lending” instead of just requiring the provision of due
information. The two policy changes indicated above are important for two reasons:
1) they have a direct effect on consumer access to financial services and credit and
2) they determine the level and depth of consumer protection assured at European
level. These issues will be covered more in depth later on.
Taking this context into account, this article intends to provide an overview
of the directive and review in a critical way some of the most important issues. It is
structured as follows. The second section gives a brief description of the paradigms
in the field of European consumer law, the main key points of the directive and some
other influential legislation in European banking and financial law. Section 3
discusses the incorporation of the Directive into the national legal systems, both in
the EU and the EEA. Sections 4 covers the classic tension between the goal of
attaining a European single market while a high level of consumer protection must
be guaranteed and the combined approach of EU institutions through public/private
law. Section 5 explains the scope of the European legislation on mortgage credit.
Section 6 focuses on the substance of the directive and its most novel provisions,
duties imposed on financial institutions and consumer rights. Section 7 summarizes
other complementary issues. Section 8 makes a critical assessment of the MCD and
its interaction with national laws and considers some important issues to be dealt
with de lege ferenda in the field of mortgage credit and consumer protection. Last
but not least, Section 9 concludes with the most important question that maybe
cannot be answered now in a straightforward way, the question whether this directive
will protect consumers when the next economic/financial crisis inevitably arrive.
Some final thoughts are expressed in the conclusions.
2. The new Directive 2014/17/EU on mortgage credit: key preliminary
points
Before diving into more specific issues it is important to get an overview of
this legislation. The Mortgage Credit Directive represents the first attempt of the
European institutions to regulate this market. It applies to all loans made to
consumers for the purpose of buying a property (usually home but not only),
including loans that are guaranteed by a mortgage or by another comparable security,
guarantee or lien. It belongs therefore to the area of European consumer law
3
.
3
For a more recent overview of the field see also Micklitz, Hans W., Reich, Norbert and Rott, Peter,
Understanding EU Consumer Law, Intersentia, Antwerp/Oxford/Portland, 2009; Micklitz, Hans W, J
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