A report published by the House of Lords EU Select Committee has criticised European Commission proposals to harmonise consumer credit legislation across the EU.

The proposals are designed to promote a cross border internal market in consumer credit by allowing lenders in one EU Member State to provide credit to consumers in another. This would replace the 1987 EU Directive in Consumer Credit which lays down EU-wide minimum standards of consumer protection, but crucially, allows nation states to improve on those standards, as Britain has done.

The new Directive proposed by the European Commission aims to eradicate differences in some aspects of national laws to stimulate the growth of a single market in consumer credit. This would involve stopping Member States bringing in or changing laws to give consumers either more or less protection than the common standard. The Lords Committee are concerned that this could weaken consumer protection in the UK where our already high standards were recently reinforced by the Consumer Credit Act. The report stresses that the proposals would also limit the Government’s present flexibility to change UK consumer credit laws rapidly through domestic regulation when needed.

The Committee said it recognises that an effective single market in consumer credit would benefit consumers and lenders alike. But they say this is not the right way to achieve it.