Implementation Mortgage Credit Directive; What changes?
04 April 2016
The EU Mortgage Credit Directive (the "Directive") aims to create an efficient and competitive internal market for mortgage credit with a high level of consumer protection. The Directive requires European member states to transpose it into their national laws ultimately on 21 March 2016. The Netherlands has missed this deadline by a few weeks. The bill implementing the Directive into the Dutch Financial Supervision Act ("FSA") and Book 7 of the Dutch Civil Code was adopted by the Dutch Lower House on 8 March 2016 and approved by the Dutch Senate on 22 March 2016. The bill is expected to enter into force in April 2016. The implementation of the Directive will also require changes to be made to delegated legislation. A consultation on the relevant decree1 (the "Decree") took place in the fall of 2015 and the final decree is expected to be published shortly2. The implementing legislation does not provide any transitional period and therefore the new requirements will apply to all new consumer mortgage credit agreements entered into after the entry into force of the new legislation. In addition, the duty of care requirements as set out in the Decree will also apply as of the date of the entry into force of the Decree to existing mortgage credit agreements.
Even though many of the requirements from the Directive are already to some extent included in current Dutch law or regulation, there are a number of new requirements which will have an impact on mortgage credit providers and intermediaries in the Netherlands. The key changes are set out below.
The Directive introduces a passporting regime for mortgage credit intermediaries. This means that mortgage credit intermediaries licensed in one EU member state may provide services in another EU member state on a cross-border basis or through a branch on the basis of an EU passport. Dutch mortgage credit intermediaries that intend to provide services in other EU member state must complete the passporting procedure via the AFM. The new passporting regime under the Directive applies only to mortgage credit intermediaries and not to mortgage credit providers. A licensed Dutch bank may provide mortgage credit to consumers in another EU member state on a cross-border basis or through a branch on the basis of an EU passport if it has completed the passporting procedure via the DNB that is available under the banking license.
Information to be provided to the consumer
A mortgage credit provider and a mortgage credit intermediary are required to provide the consumer with personalised information needed to, amongst others, compare mortgage credits available in the market. This information should be provided using the European Standard Information Sheet (the "ESIS") which must be provided to the consumer without undue delay after the consumer has given the mortgage credit provider or intermediary all the necessary information for the creditworthiness checks and in good time before the consumer is bound by any credit agreement.
Creditworthiness assessment & unconditional offer
A mortgage credit provider is required to make an offer which is binding on the creditor for a period of 14 days. The binding offer must be accompanied by a copy of the draft credit agreement and the ESIS, unless the ESIS has been provided to the customer at an earlier stage. The binding offer may only be made after the creditworthiness checks have been performed. This has an impact on the current practice of mortgage credit providers/intermediaries of providing the consumer with an offer which is conditional on, amongst other things, the creditworthiness checks. Mortgage credit providers may continue to use a conditional offer. However, after the conditions of the offer have been fulfilled, the consumer must be informed that the offer has become binding. At this point the 14 day binding offer period will start. This means that mortgage credit providers/intermediaries need to amend their procedures accordingly.
Knowledge and competence requirements for staff
The Directive includes requirements in relation to the knowledge and competence (vakbekwaamheid) of staff of mortgage credit providers and mortgage credit intermediaries. These requirements are in line with existing Dutch legislation with the exception that the knowledge and competence requirements are extended to the direct managers of staff members who have client contact. There is no diploma requirement for such direct managers (unless they themselves act as advisors). Furthermore, the Netherlands has used the member state option in the Directive to impose additional knowledge and competence requirements for mortgage credit providers (with a banking license) and intermediaries from other EU member states which offer their services in the Netherlands on a cross-border basis or through a branch office under an EU passport. These additional requirements apply next to the requirements of the home member state.
Annual percentage rate of charge
The method for the calculation of the annual percentage rate of charge (jaarlijks kostenpercentage) is set out in the Directive and it changes the current Dutch calculation method for the annual percentage rate of charge. The annual percentage rate of charge must be disclosed in, amongst others, the ESIS. This will assist consumers in comparing mortgage credits available in the market.
The costs for a consumer for an early repayment, in full or in part, of a mortgage credit may not exceed the financial loss for the mortgage credit provider caused by the early repayment. A consumer requesting repayment must be provided with transparency on the method of calculation of the costs.
Duty of care requirements in relation to defaults and foreclosures
A general duty of care in relation to defaults and foreclosures is introduced in the (draft) Decree. In addition, it is specified in the (draft) Decree that the cost for the consumer in relation to a default may not exceed the cost for the mortgage credit provider caused by the default. In the Civil Code, a statutory grace period of two months for a consumer is included before a mortgage credit provider may proceed with a foreclosure in case of payment arrears. The mortgage credit provider is furthermore required to personally invite the consumer to discuss the payment arrears in search for a solution.
The European Banking Authority ("EBA") has issued the following guidelines on requirements set out in the Directive:
- Guidelines on arrears and foreclosure (issued on 1 July 2015);
- Guidelines on creditworthiness assessment (issued on 1 July 2015); and
- Guidelines on passport notifications for mortgage credit intermediaries (issued on 11 August 2015).
All the aforementioned guidelines entered into force on 21 March 2016.
If you would like to discuss this development further, please contact any of the contact persons listed below or your usual contact at Allen & Overy.
1. Decree amending the Decree on market conduct supervision Wft, the Decree on market entry for financial undertakings Wft and the Decree on administrative fines for financial sector in relation to the implementation of the Mortgage Credit Directive.
2. Please note that the information in this eAlert is based on the consultation version of the Decree as the final version is not yet available and therefore the information is subject to change.