THE COUNCIL ,
HAVING REGARD to Article 5 b) of the Convention on the Organisation for Economic Co-operation and Development (OECD) of 14 December 1960;
CONSIDERING that the OECD Recommendation on High-Level Principles on Financial Consumer Protection [ OECD/LEGAL/0394 ], provides a comprehensive framework for financial consumer protection regimes generally, on which this Recommendation builds, in particular in relation to the specific features and risks of consumer credit;
CONSIDERING that the OECD has played an important role in establishing the concept of consumer detriment, as recalled in the OECD Recommendation on Consumer Policy Decision-Making [ OECD/LEGAL/0403 ], which includes harm or loss arising from, for example, inadequate information, unfair contract terms, or misleading, exploitative, discriminatory and abusive practices, including criminal activities such as frauds and scams.
HAVING REGARD to the standards developed by the OECD in the areas of financial literacy, consumer dispute resolution and redress, financial consumer protection, consumer policy decision making, consumer protection in electronic e-commerce and artificial intelligence;
CONSIDERING the importance of consumer credit for the financing of purchases of goods and services by consumers and the development of new types of consumer credit and delivery channels which, in certain cases, are outside the scope of regulations promulgated with a view to protecting consumers;
CONSIDERING that consumers may not be well-informed about the terms and conditions of the consumer credit contracts which they sign and that, in certain cases, they can be at risk of being deceived by misleading or incomplete advertising or presentation of credit terms;
RECOGNISING that it is necessary to ensure a high standard of consumer information in connection with consumer credit advertisements and consumer credit contracts, and to ensure consumers' economic interests are appropriately protected by prohibiting or regulating in particular the use of certain practices or clauses considered to be abusive or the recourse to the bill of exchange and the promissory note;
RECOGNISING that, as regards the provision of consumer credit, promoting responsible lending practices is important in avoiding, as far as possible, repayment problems and over-indebtedness, and helping credit providers to ensure the suitability of the consumer credit product provided;
RECOGNISING further that it is necessary to ensure respect of fundamental rights as well as the protection of individual privacy of consumers in the framework of consumer credit transactions and to ensure the means of redress available to consumers by providing inexpensive and efficient procedures for solving disputes concerning credit transactions;
CONSIDERING that consumers may be vulnerable in credit transactions due to a combination of their personal characteristics and circumstances, market conditions, and firms’ conduct and culture, and thus particularly susceptible to detriment;
On the proposal of the Committee on Financial Markets:
Legal, Regulatory and Supervisory Framework
I. RECOMMENDS that Members and non-Members having adhered to this Recommendation (hereafter the “Adherents”) design and implement an appropriate and proportionate legal, regulatory and supervisory framework for financial consumer protection in relation to all forms of consumer credit, taking into account the nature, scale and complexity of the consumer credit market and the specificities of the different consumer credit products (including new forms of credit and credit-like products, such as those typically characterised by interest-free instalment payments often known as “buy now pay later” products) and market players, while supporting the emergence of innovative business models. To this end, Adherents should have:
a) mechanisms in place, such as periodic reviews, to identify and address any gaps to either regulate or supervise consumer credit providers and intermediaries (including where relevant their authorised agents, noting that where regulated firms outsource activities to agents or other third parties, they should retain appropriate responsibility for the acts and omissions of the third party), products and delivery channels, throughout the product life cycle, including debt collection.
b) the necessary tools to identify, control or mitigate significant consumer risks including in relation to harmful, unsuitable and/or complex consumer credit products.
Role of Oversight Bodies
II. RECOMMENDS that Adherents establish one or more oversight bodies (e.g. a domestic public authority responsible for financial consumer protection) with a clear mandate to protect consumers, powers pursuant to domestic laws to oversee market conduct activities, including powers to issue and enforce decisions or rules by administrative means and to take corrective action where necessary. To this end, Adherents should ensure that these oversight bodies:
a) have at their disposal a range of effective measures (including sanctions) for non-compliance by consumer credit providers and intermediaries.
b) have at their disposal a range of tools including, e.g. surveillance, market monitoring, inspection of regulated firms, handling complaints from citizens and investigation powers and have the ability to obtain information from consumer credit providers and intermediaries (including e.g. information about market and borrower characteristics).
c) are capable of responding to technological innovation issues and developments effectively, while maintaining appropriate safeguards and consumer protections.
d) can take action regarding the product design, marketing or selling of consumer credit products in response to identified risks that could significantly affect consumers (e.g. by prohibiting, restricting or limiting certain product characteristics, such as through price caps, as appropriate).
e) co-operate appropriately, where there are multiple oversight bodies with jurisdiction over consumer credit, to help avoid duplication and gaps in oversight.
f) promote consultation with key external stakeholders, e.g. self-regulatory bodies, industry and consumer representatives, where appropriate.
Access and Inclusion
III. RECOMMENDS that Adherents promote responsible and appropriate access to affordable consumer credit products and services to contribute to the financial well-being of all consumers, including those who may be experiencing vulnerability to detriment, as well as promote the use of new technologies and digital means recognising that consumers may have different needs, levels of digital skills and digital access.
Financial Literacy and Awareness
IV. RECOMMENDS that Adherents ensure the promotion of financial literacy and awareness and that clear information on consumer protection, rights and responsibilities relating to credit is easily accessible by consumers. To that effect, Adherents should develop and promote appropriate mechanisms to help all consumers, including consumers who may be experiencing vulnerability to detriment, to
a) develop the knowledge, skills and confidence to make informed choices,
b) know where to go for advice or assistance (including when they have debt problems),
c) take effective action to improve their own financial well-being.
Competition
V. RECOMMENDS that Adherents promote competitive markets in order to, among other things, provide consumers with greater choice of consumer credit products and to create competitive pressure on credit providers to offer competitive products, enhance innovation and maintain high service quality. To this end, Adherents should promote measures so that consumers are able to search, compare and, where appropriate, switch between consumer credit products and providers easily and at reasonable and disclosed costs.
Equitable and Fair Treatment of Consumers
VI. RECOMMENDS that Adherents take the following measures with the aim of ensuring that consumer credit providers or intermediaries’ behaviour does not lead to inappropriate or discriminatory outcomes for all consumers:
a) Embed such principles in all requirements regulating the relationship between consumer credit providers or intermediaries and consumers, including as regards transparency (before, during and after the point of sale), advertising, advice and other selling practices, remuneration, conflicts of interest, handling of arrears and defaults, and corporate governance.
b) Prohibit or regulate unsolicited credit sales unconnected with the supply of goods or services (e.g. door-to-door canvassing of consumer credit or pre-approved credit cards).
c) Provide for a cooling-off period (i.e. a period during which the consumer may withdraw from the contract) in respect of all unsolicited credit sales and provide for a simple and inexpensive procedure whereby the consumer may recover sums already paid.
d) Prohibit discrimination on grounds of personal characteristics such as sex, sexual orientation, marital status, nationality, religion, race or colour in consumer credit transactions.
e) Promote the use of digital technology (e.g. artificial intelligence, algorithms), for example for marketing and lending decisions, that is fair, transparent, explainable and appropriately disclosed.
f) Prohibit or make null and void unfair contractual terms in consumer credit contracts, including but not limited to the following:
i) clauses which require the borrower to give security of manifestly greater value than the amount of his obligations under the credit contract;
ii) clauses which enable the creditor in cases where the consumer falls behind in his payments to charge penalty rates of interest, where this violates applicable laws or other excessive charges;
iii) clauses which make the consumer in default of payment liable for excessive debt collection charges;
iv) clauses imposing the obligation on the consumer, in the event of early repayment, to pay the full amount of all future charges with no rebate where appropriate.
g) Establish a limited joint liability of creditor and seller where goods or services are financed by consumer credit but are not supplied or are not in accordance with the sale contract.
h) Prohibit or regulate the use of bills of exchange and promissory note in consumer credit transactions.
i) Identify the consumer characteristics (e.g. behavioural biases and personal characteristics), consumer circumstances, market conditions and firms’ conduct and culture that may contribute to making consumers vulnerable to detriment, including misleading or abusive practices, and which measures can be taken to mitigate these effects on the borrowing decisions they make.
j) Provide reasonable channels for consumers to submit claims, make complaints, seek redress and not place unreasonable barriers on consumers’ ability to switch consumer credit provider or credit intermediary.
k) Have requirements in place promoting fair and professional conduct by debt collectors and prohibiting unfair debt collection practices (such as making fraudulent or misleading representations, divulging sensitive information, charging unreasonable fees, and using threat or force against, or undue harassment of the debtor, their family members, colleagues or any other person in connection with the debtor).
Disclosure and transparency
VII. RECOMMENDS that Adherents take measures so that consumers are provided with adequate information, irrespective of whether they are dealing with a consumer credit provider or intermediary, on the key features of the consumer credit offered or provided, in particular highlighting the fees, charges, penalties, key risks and consumer rights. To this end, Adherents should:
a) Require that all information, disclosures and other communications, irrespective of the manner or channel in which credit is provided, is clear, accurate, and not misleading, and is sufficient at all stages of the relationship with the consumer. Where appropriate, information, including technical terms, should be adequately explained and made accessible to the consumer.
b) Promote standardised pre-contractual and contractual disclosure where applicable and practicable to facilitate comparison between consumer credit products and services of the same nature.
c) Embed an understanding, where appropriate, of consumer decision-making and behavioural biases in the development of policies relating to disclosure requirements and/or alternative approaches.
d) Introduce disclosure requirements to indicate the real cost of credit and/or annual percentage rate of charge for credit in addition to the cash price in the case of instalment sales, or in addition to the total amount of credit, in relation to all specific advertisements and pre-contractual information relating to consumer credit, i.e. those which give details of the consumer credit transaction offered and indicate any elements of the credit cost. Where relevant, the following elements should also be provided:
i) Terms of repayment;
ii) Any security that may be required.
e) Introduce disclosure requirements, in relation to consumer credit contracts, to indicate key information relating to the contract including, but not limited to, the following:
i) Names and addresses of all the parties involved and, where applicable, licence or registration details of the credit provider, authorised agent or other credit intermediary;
ii) Annual rate of interest and any other charges for credit and/or annual percentage rate of charge for credit, and if the law provides for it, any legal possibility of variation in the rate and/or other charges;
iii) Amount of credit and/or any credit limits;
iv) Where applicable, the total cost of credit and/or total amount to pay;
v) Terms of repayment including, frequency, number and amount of repayments and applicable interest-free period (for example in the case of buy now pay later products);
vi) Statement of the consumer's rights as regards terminating the contract or effecting early repayment without penalty;
vii) Clear indication of the cooling-off period, where applicable, and how the consumer may exercise such rights;
viii) Particulars of any security required, if relevant and, if the law provides for it, the seller's or the credit institution's right to repossess;
ix) Interest rate and fees on arrears and adjustment procedures;
x) Consequences of default, missed payments and related charges;
xi) Availability of debt counselling or advice services;
xii) Availability of complaints handling and redress mechanisms;
xiii) Where relevant, details of the relevant oversight body;
xiv) Additionally, in the case of credit contracts for the acquisition of goods or services,
‒ Existence of a link between the seller and the creditor, where applicable;
‒ Description of the goods and services;
‒ Cash price;
‒ Any differences in the terms offered to cash customers and credit customers;
xv) Additionally, in the case of credit cards and store cards:
‒ Limitation of the financial responsibility of the consumer for unauthorised use of a credit card or store card if lost or stolen.
xvi) Additionally, any information related to any ancillary product or service, including costs and terms, sold in connection with the consumer credit.
Quality Financial Products
VIII. RECOMMENDS that Adherents take measures so that consumer credit products meet the interests and objectives of target consumers and contribute to their financial well-being. To this effect, Adherents should take measures so that consumer credit providers and intermediaries have product oversight and governance arrangements that comprise:
a) Processes relating to the design, testing, approval, distribution of consumer credit products and their features, taking into account capabilities, behavioural biases and vulnerabilities of consumers, to avoid consumer harm, such as over-indebtedness.
b) Processes through which consumer credit products can be monitored, modified or withdrawn taking into account consumer feedback and outcomes.
Responsible Business Conduct and Culture of Financial Services Providers and Intermediaries
IX. RECOMMENDS that Adherents take measures to promote responsible business conduct by consumer credit providers and intermediaries having due regard to the best interest of their consumers, to prohibit practices that may be misleading or abusive, and to ensure that consumer credit providers are responsible and accountable for the actions of their authorised agents and other third parties, including debt collectors. To this effect, Adherents should establish measures including but not limited to the following:
a) Requirements relating to responsible lending in order to reduce the likelihood of repayment problems and resulting over-indebtedness issues and to assist the credit provider to avoid miss- selling, which would require consumer credit providers to:
i) Ensure that a consumer's ability to meet relevant payment obligations is assessed before a transaction is concluded, or before any significant increase in the amount of credit. The assessment should be based on relevant and proportionate information regarding the consumer, such as income and expenses, and the likely costs and risks of the credit. Credit should not be granted if the credit is clearly not affordable by the consumer or is likely to have a significant adverse effect on their overall financial situation.
ii) Ensure that, where relevant, automated credit scoring models comply with data protection requirements.
iii) Ensure that automated credit scoring models (including those underpinned by artificial intelligence) are appropriately tested, appropriately weight all the relevant variables, provide for appropriate and proportionate human oversight and intervention, to mitigate against irresponsible or inappropriate, including biased, lending decisions or automatic refusals.
iv) Ensure that consumers have the right to an explanation when their creditworthiness is assessed by an automated credit scoring model, and, where appropriate, the right to request a review of both the assessment and the resulting lending decision.
b) Requirements relating to the treatment of consumers who may be experiencing vulnerability or financial difficulty, which would:
i) Require consumer credit providers to have systems, policies and procedures in place (e.g. employee training) to identify consumers experiencing vulnerability and provide them with timely and accurate information about their products.
ii) Require consumer credit providers to appropriately evaluate loss mitigation applications and to have policies and procedures to provide relief options in appropriate cases for consumers overdue or falling behind in meeting their repayment obligations (e.g. revised loan terms, moratoria on repayments, or other forms of relief).
iii) Introduce appropriate and proportionate protection measures that may be exercised by consumers who are over-indebted or who may be experiencing vulnerability (such as access to free or low-cost independent debt counselling services).
iv) Require responsible business conduct covering activities relating to debt collection (for example giving notice to consumers of the intention to commence debt collection or prohibiting creditors and debt collection agencies from claiming payment of debts from persons other than the consumer, unless there is a legal basis for doing so).
Protection of Consumer Assets against Fraud, Scams and Misuse
X. RECOMMENDS that Adherents take appropriate measures to protect consumers’ assets against fraud, scams and other types of misuse, including establishing appropriate liability arrangements and promoting co-operation between oversight bodies and relevant stakeholders to mitigate or address instances of fraud, scams and misuse.
Protection of Consumer Data and Privacy
XI. RECOMMENDS that Adherents take appropriate measures to protect consumers’ data and privacy rights including consumers’ right to know what information has been collected about them by credit reporting agencies, as well as consumer credit providers and intermediaries, to access it, challenge it and to have it corrected if erroneous. To this end, Adherents should:
a) implement appropriate oversight arrangements of credit reporting agencies in order to ensure that the information they hold and disclose is used exclusively for the purpose for which it was collected, and that the information is accurate and up to date.
b) require credit reporting agencies to be made subject to authorisation (which could be withdrawn in the event of abuse), where Adherents provide for administrative supervision of consumer credit transactions.
c) have mechanisms in place requiring consumer credit providers and intermediaries to inform consumers of breaches resulting in loss or theft of personal and/or financial data.
Complaints Handling and Redress
XII. RECOMMENDS that Adherents take measures to ensure that consumers have access to adequate complaints handling and redress mechanisms, including for debt collection, that are accessible, affordable, independent, fair, accountable, timely and efficient and which do not impose unreasonable cost, delays or burdens on consumers. To this end, Adherents may leverage technology to facilitate the effective design of these mechanisms and should:
a) Require consumer credit providers and intermediaries to provide consumers with clear and understandable information on the complaints handling and redress procedures for internal and external mechanisms, including alternative dispute resolution schemes.
b) Promote the reporting, analysis and publication of consumer complaints data relating to consumer credit providers, in order to provide information to regulators and supervisors on how to improve market conduct and help identify consumer risks and outcomes, regulatory gaps, systemic irregularities in the market and to assess the effectiveness of regulatory measures and compliance with laws and regulations, including, e.g., information on number of complaints received, product types, reason for complaints, and resolution type.
c) Establish civil, criminal or administrative sanctions for discrimination as described in Provision VI. d) in the context of consumer credit transactions, and for infringements of relevant regulations.
d) Give consumers the possibility of bringing a civil action for damages in order to obtain compensation for monetary loss sustained or a conduct remedy as the result of the failure of a credit provider or credit intermediary to fulfil its legal commitments.
e) Extend to consumer associations, if national procedures allow such an extension, the right to take action in the courts in their own name when the collective interests of consumers are harmed.
f) Where there is no provision for the injunction procedure under civil law, consider whether it would be possible to introduce this procedure into their legislation and enable consumers or consumer associations to have recourse to it.
XIII. INVITES the Secretary-General and Adherents to disseminate this Recommendation.
XIV. INVITES non-Adherents to take account of and adhere to this Recommendation.
XV. INSTRUCTS the Committee on Financial Markets, through the Working Party on Financial Consumer Protection, Education and Inclusion, to report to Council on the implementation, dissemination and continued relevance of this Recommendation no later than five years following its revision and at least every ten years thereafter.