Beyond legal duty: the new EU solvability rules and the challenge of systemic non-compliance in Member States

Mariana Cunha Marques (Masters in European Union Law from the School of Law of University of Minho)

The new horizons of consumer credit legislation

Consumer credit is a fundamental instrument, but despite its indispensability, it continues to pose significant risks, especially when granted irresponsibly. This phenomenon has driven up levels of indebtedness and over-indebtedness within the European Union. The new Consumer Credit Directive – Directive 2225/2023 – introduced important innovations, considering its main objective of strengthening consumer protection.

Firstly, we must mention the extension of the scope of application in Article 2, which was vital in order to regulate and adapt to the digital economy and new credit products on the market. Of particular note is Article 2(2)(c), which delimits the application of the Directive, stipulating that its provisions do not apply to credit agreements with a total amount exceeding €100,000. The abolition of the minimum limit allowed its provisions to cover certain types of credit that required stricter regulation, such as high-cost credits or payday/instant loans[1] and “buy now, pay later” solutions.[2] These products can be considered harmful to consumers because they are granted quickly,[3] ignoring the need to assess creditworthiness. Furthermore, they have very high costs, and, in the event of default, the additional costs are exorbitant.[4]

Another relevant aspect introduced by the new law is the adaptation of the rules on advertising and information. This change was deemed necessary given that the list of information required by its predecessor was too complex for consumers to understand.[5] In this regard, the list of mandatory information to be included in advertising media has been reduced, so that only essential elements are advertised. There was also mention of advertising in digital media, as it was found to be inappropriate.[6]

Also noteworthy are the prohibitions listed in paragraphs 7 and 8 of Article 8, which stipulate that Member States must prevent advertising that gives consumers the misleading impression that credit will improve their financial situation. Another new feature implemented in the Directive concerns the right of withdrawal. Without prejudice to maintaining the 14-day period for consumers to freely and without justification revoke the contract, there was a need to strengthen this provision in light of the understanding of the Court of Justice of the EU (CJEU).[7] Thus, Article 26(2) stipulates that if the consumer has not been duly informed, under the terms provided for, the right of free revocation expires after 12 months and 14 days from the conclusion of the credit agreement.[8]

Still focusing primarily on consumer protection, we consider it pertinent to highlight Article 14 of the Directive, which introduces a ban on compulsory tied sales. In most situations, this phenomenon leads to unnecessary consumption on the part of borrowers and has been considered problematic and irresponsible by some Member States.[9]

The duty to assess creditworthiness deserves special attention. We understand that, although the granting of credit should be reserved for consumers with proven financial capacity, in practice, lenders are driven by strong incentives and commissions. This inherent conflict of interest relegates consumer protection to the background, demonstrating that the credit risk of financial institutions is not in itself a sufficient factor to guarantee consumer protection.[10]

Credit products available to consumers in the market[11] must meet certain requirements in order to prevent the sale of potentially harmful products. Responsible design of credit products is also important from a prudential perspective, as it increases consumer and investor confidence in financial institutions and enhances financial stability.[12]

Regarding the analysis of solvency itself, it was concluded that its absence was one of the most important factors contributing to consumer detriment in the European Union. Thus, the new Directive reinforced this obligation imposed on lenders in Article 18, and, according to paragraph 1, credit institutions are responsible for carefully and thoroughly assessing the borrower’s ability to comply with the contract.

This assessment must be made taking into account the information considered relevant to determine whether the consumer will be able to repay the credit.[13] Such information may be obtained from the consumer, through databases, or through other internal or external sources.[14] It should also be noted that it is incumbent upon lenders to verify the accuracy of the information they collect, this burden being derived from the understanding of the CJEU.[15]

This law introduces the consequence of an unfavourable assessment of solvency analysis in Article 18, paragraph 6, a contrario,[16] which establishes that lenders must refuse to grant credit when it is proven that the consumer will not be able to fulfil the obligations arising from the contract.[17]

The latest development we would like to highlight relates to the phenomenon of digitisation, since Article 18(8) stipulates that, if automated processing of consumers’ personal data is used to assess their ability to pay, consumers shall have the right to be duly informed and may request human intervention in their case.[18] These measures have been adopted to avoid the risks inherent in credit scores.[19]

It is also worth mentioning the fight against conflicts of interest, given that the Directive established rules on the remuneration of employees of financial institutions. These measures, provided for in Article 32, aim to change the internal culture of the sector, decoupling profit from irresponsible lending, since the high commissions associated with it have been a determining factor in the origin of irresponsible credit.[20]

Enforcement gap

Without losing sight of the important innovations, the effectiveness of the Directive depends on its proper transposition by Member States, as well as on the actions of National Supervisory Authorities. After analysing the report prepared by Finance Watch, [21] as well as the reports from the Bank of Portugal, [22] we found that there are many irregularities and inconsistencies that need to be corrected.

In terms of Portuguese law, numerous problems were detected regarding pre-contractual and contractual information and incomplete contracting processes. Furthermore, it should be noted that there is no mention of the solvency analysis process. This is alarming, as we consider it essential to monitor its occurrence and the underlying process, otherwise financial institutions will continue to enter into credit agreements without checking the consumer’s financial capacity.

Furthermore, the physical marketing of credit products is not expressly addressed. In this regard, it should be emphasised that the approach in public establishments by individuals affiliated with financial institutions is a frequent practice of persistent encouragement of consumption, which omits the necessary warning about the responsibilities inherent in a credit agreement and the mandatory analysis of the consumer’s creditworthiness.[23] We therefore believe that the new Directive should have regulated this issue, based on the example of Ireland and Belgium.[24]

Regarding other Member States, the Finance Watch report highlighted that they face similar problems. These include the use of inappropriate methods in solvency analysis and the risks inherent in the increase in digital contracting procedures, such as aggressive marketing and misleading advertising that encourages irresponsible borrowing.[25] Still on this subject, it is important to highlight the unacceptable case in Ireland, where a credit institution resorted to analysing photographs and consumer behaviour on social media before granting credit. This practice represents a clear violation of privacy.[26]

The first step towards addressing these gaps was the implementation of Directive 2023/2225, and once it has been transposed and applied, we will be able to revisit these issues and see how they have been resolved.

Finally, we must mention that we consider the provisions of Article 23 of the new law to be insufficient, which, like its predecessor, stipulates that penalties for non-compliance with the national provisions transposing it must be adopted by the Member States.[27] To be appropriate, penalties must be sufficiently dissuasive, effective, and proportionate. This does not address discrepancies at the national level in the various legal systems, so it is essential to refer to the CJEU’s understanding of this matter, which is quite extensive.

European legislation on personal insolvency

The phenomenon of over-indebtedness is one of the main problems within the European Union today, and concern in this regard is evident, insofar as the recitals of the Directive emphasise the need for lenders not to grant credit irresponsibly, since such granting increases the risks of over-indebtedness for consumers, which must be avoided.[28]

However, without prejudice to the need to prevent this harmful phenomenon, the new law governing consumer credit does not clarify anything regarding the subsequent phase, i.e., personal insolvency, the main consequence of over-indebtedness.[29]

It is therefore up to the Member States to regulate this area and, although all national legal systems cover this matter, there are several discrepancies arising from the requirements of each of them, which leads to a lack of coordination. It is therefore considered essential to have harmonisation at European level in order to enable cohesive legislation on personal insolvency within the Union,[30] not only for the benefit of consumers, but also to increase the scope of the internal market.[31]

A possible Directive protecting personal or consumer insolvency would have to regulate the areas where there is the greatest legislative divergence, namely the protection of the debtor in relation to the period during which they will have the opportunity to start afresh, as well as ensuring that their human dignity is respected.[32] On the other hand, it should also be clearly stipulated under what conditions the debtor can access personal insolvency, namely distinguishing between fault and good faith and, if the latter criterion is adopted, defining the specific terms under which it is assessed. It is crucial to harmonise and regulate access to insolvency proceedings, ensuring that procedural fees do not constitute an insurmountable obstacle for debtors. This measure is particularly relevant for individuals with limited or no income or assets. Given their vulnerable situation, we believe it is imperative that these groups have access to specialised, unbureaucratic insolvency mechanisms.[33]

We believe that the failure to supervise is an obstacle to European integration, creating asymmetries that harm consumers. We therefore consider that stricter standards for the supervision of financial institutions should be established and that the process of harmonising European legislation on personal insolvency should be initiated.

[1] According to the European Parliament study, “Consumer protection aspects of financial services: Study,” PE 507.463, February 2014, available at https://www.europarl.europa.eu/RegData/etudes/etudes/join/2014/507463/IPOL-IMCO_ET(2014)507463_EN.pdf and accessed on 04-12-2025, payday loans have been recognised as potentially harmful to individual consumers, according to previous studies carried out by the Commission, the European Banking Authority, and regulatory authorities.

[2] This reasoning can be found in Article 2(2)(h), a contrario.

[3] According to Cherednychenko, “On the bumpy road to responsible lending in the digital marketplace: the new EU Consumer Credit Directive”, Journal of Consumer Policy 47 (2024): 241–270, there are banks that promise consumers instant small loans in 60 seconds, i.e., with a very short decision-making process. These loans are usually taken out by consumers with low incomes who have no other options. We can even consider that they are taking advantage of the fact that there are no other services available to these consumers.

[4] See Olha O. Cherednychenko and Jesse M. Meindertsma, “Irresponsible lending in the post-crisis era: is the EU Consumer Credit Directive fit for its purpose?”, Journal of Consumer Policy 42 (2019): 491.

[5] In this regard, see the European Banking Authority (EBA) study entitled “EBA Consumer Trends Report,” 2021, point 269, available at https://www.eba.europa.eu/sites/default/files/document_library/Publications/Reports/2021/963816/EBA%20Consumer%20trend%20report.pdf and accessed on 04-12-2025.

[6] Report from the Commission to the European Parliament and the Council on the implementation of Directive 2008/48/EC on credit agreements for consumers, Brussels, 5.11.2020 COM(2020) 963 final, 9.

[7] Judgment CJEU UK and others v Volkswagen Bank GmbH and others, 9 September 2021, joined cases C-33/20, C-155/20, and C-187/20, ECLI:EU:C:2021:736, paragraph 126.

[8] This provision has been criticised, notably by the European Consumer Organisation, in its paper “Consumer Credit Directive: BEUC recommendations for trilogues”, 2022 available at BEUC-X-2022-091_Members_consultation_CCD_position_paper_for_trilogues.pdf, and accessed on 04-12-2025 (see page 16). According to this paper, despite the intention to strengthen consumer protection, the opposite will occur, insofar as establishing a deadline significantly limits the consumer’s right of withdrawal, who was not properly informed.

[9] As stated in the European Banking Authority’s 2017 report on consumer trends, available at https://www.eba.europa.eu/sites/default/files/documents/10180/1720738/a64f91a1-7222-4af7-8965-bcef2c793c2d/Consumer%20Trends%20Report%202017.pdf and accessed on 04-12-2025 (see page 22). According to this report, one of the Member States surveyed stated that one of the most popular forms of tied selling is a “free” payment account, for which fees are charged, so consumers are unaware of the amount they are paying to maintain the account. It is also stated that this situation has affected at least twelve million consumers in that particular Member State.

[10] Cherednychenko and Meindertsma, “Irresponsible lending in the post-crisis era: is the EU Consumer Credit Directive fit for its purpose?”, 485.

[11] Cherednychenko and Meindertsma, “Irresponsible lending in the post-crisis era: is the EU Consumer Credit Directive fit for its purpose?”, 487, consider that responsible product design is a prerequisite for responsible lending, as it takes place at a stage prior to the products entering the market.

[12] As highlighted by the EBA in its report entitled “Final report: Guidelines on product oversight and governance arrangements for retail banking products,” dated July 15, 2015, available at https://www.eba.europa.eu/legacy/regulation-and-policy/regulatory-activities/consumer-protection-and-financial-innovation-4, and accessed on 04-12-2025 (see page 4).

[13] This reasoning is also present in Directive 2014/17/EU of February 4, 2014, on credit agreements for consumers relating to residential immovable property (OJ L 60, 28.2.2014, 34-85), in its Article 18(1), which states that the assessment must take into account all factors relevant to understanding whether the consumer will be able to meet their contractual obligations.

[14] Section 18(3) states that social media should not be considered as external sources.

[15] Judgment CJEU CA Consumer Finance, 18 December 2014, case C‑449/13, ECLI:EU:C:2014:2464.

[16] The legal provision is formulated positively, i.e., it stipulates that lenders should only grant credit if the outcome of the assessment is positive.

[17] It should be noted that in the Commission’s 2021 proposal it was suggested that in exceptional and justified cases it should be possible to grant credit even if the assessment was negative (paragraph 49). However, this provision was not included in the final text of the Directive.

[18] According to the provisions of the respective Article, consumers may request an explanation of the reasoning behind the automated processing of the creditworthiness analysis, express their point of view, and request a human reassessment of the decision.

[19] Regarding credit scoring, the CJEU, in its judgment SCHUFA of 7 December 2023 (C-634/21, ECLI:EU:C:2023:957), ruled that this would constitute an “automated individual decision” within the meaning of Article 22(1) of the GDPR if the lender bases its decision on it in a decisive manner.

[20] See Cherednychenko and Meindertsma, “Irresponsible lending in the post-crisis era: is the EU Consumer Credit Directive fit for its purpose?”, 257. According to the authors, it is necessary to guarantee this remuneration, bearing in mind that most of the problems of irresponsible lending and associated sales arose due to the high commissions paid to financial institutions at the time of sale.

[21] Study entitled “Consumer credit market malpractices uncovered”, February 2021, available at https://www.finance-watch.org/wp-content/uploads/2021/04/Consumer-credit-market-study-V13.pdf and accessed on 04-12-2025.

[22] Banco de Portugal, Relatório de supervisão comportamental (2024), April 2025 Report, Department of Conduct Supervision, ISSN (online) 2182-1771, available at https://www.bportugal.pt/sites/default/files/documents/2025-04/rsc_2024_pt.pdf and accessed on 04-12-2025; Banco de Portugal, Relatório de supervisão comportamental (2023), April 2024 Report, Department of Conduct Supervision, ISSN (online) 2182-1771, available at https://www.bportugal.pt/sites/default/files/documents/2024-04/rsc_2023_pt.pdf and accessed on 04-12-2025.

[23] See Rosa Soares, “Credit cards for sale in shopping malls and hypermarkets,” Público, 10 December 2017, available at https://www.publico.pt/2017/12/10/economia/noticia/credito-a-venda-nos-shoppings-e-nos-hipermercados -1795379 and accessed on 04-12-2025. In this article, it is mentioned that in basically all shopping malls we are approached by individuals who persistently encourage us to acquire credit cards from a wide variety of institutions.  

[24] According to the Irish Consumer Protection Code, Article 3.14 stipulates that financial institutions must not offer pre-approved and unsolicited credit to consumers. On the other hand, the Belgian Code de Droit Économique stipulates in Article VII.67(4) that the solicitation of credit agreements, particularly in commercial establishments, is prohibited.

[25] According to the report, in point 42, the biggest problem is that consumers are misled, particularly regarding credit conditions (such as high interest rates) and the consequences of late repayment.

[26] In fact, Article 18(3) of the new law expressly states that “social networks should not be considered external sources (…)”.

[27] As stated in Recitals 90, 91, and 92 and Article 44.

[28] As stated in Recitals 53, 54, 56, 62 and 81.

[29] Breaches of credit agreements and subsequent consumer insolvency no longer fall within the scope of European regulation, as they are left to the discretion of Member States, as stated in the Financial Services User Group report entitled “Responsible Consumer Credit Lending, FSUG opinion and recommendations for the review of the Consumer Credit Directive,” mentioned above (see page 19).

[30] As advocated by the organisation COFACE – Families Europe, in the opinion piece “Harmonising personal insolvency laws: supporting over-indebted families across the EU”, available at https://coface-eu.org/opinion-harmonising-personal-insolvency-laws-supporting-over-indebted-families-across-the-eu/ and accessed on 04-12-2025.

[31] According to the Finance Watch study mentioned above, page 14, by ensuring a uniform legal regime throughout the European Union, creditors will have greater confidence in granting cross-border credit and, moreover, the danger of forum shopping will disappear, i.e. the choice by financially capable debtors of an insolvency or payment arrangement system that is most beneficial to them.

[32] According to the Financial Services User Group report entitled “FSUG Opinion Paper on Personal Insolvency,” September 11, 2023, 10, available at https://finance.ec.europa.eu/system/files/2023-09/fsug-opinions -230911-personal-insolvency_en.pdf and accessed on 04-12-2025, it is necessary to ensure that the debtor maintains a certain level of income that allows them to live within the minimum subsistence limits and to use public services, such as healthcare, for example.

[33] According to Federico Ferretti, “The over-indebted European consumers: quo vadis personal insolvency law?”, European Law Review, 6 (2016): 26, available at https://cris.unibo.it/handle/11585/650660.9 and accessed on 04-12-2025, there is a considerable legal vacuum with regard to this group of individuals, since it is practically impossible for them to comply with a payment plan and, therefore, legislation on this matter should protect the treatment applicable to them.

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