On 9 October 2023, the Council of the European Union adopted the new directive on consumer credits (CCD) in its final and definitive version. This version was already approved by the European Parliament on 12 September 2023. The CCD introduces a new set of consumer protection rules, which impact Buy-Now-Pay-Later (BNPL) activities. BNPL is a frequently used payment method whereby a merchant enables its customers to postpone payment while purchasing goods or services, generally at the intervention of a third-party lender.
Currently, BNPL falls outside the scope of the previous Consumer Credit Directive in that BNPL products are repaid within three months and only insignificant charges are payable. Belgium has taken an even more strict approach and requires BNPL products to be repaid within two months and charges may not be higher than EUR 5.67 on a monthly basis.
As a result, the EU legislator concluded that BNPL products often lead to high costs or high compensation in the event of late or missed payments while such products give the impression to have low or no costs. Furthermore, lawmakers were also of the opinion that BNPL products might promote quick decisions from consumers, resulting in consumers that are often poorly informed about the conditions of the credit, which placed them at risk of taking on financial commitments that they may not be able to honour.
Therefore, the EU legislator decided to take a more restrictive approach on the exemption of the consumer credit directive for BNPL products and significantly revamped the BNPL exemption.
Once the newly adopted CDD enters into force, BNPL will only be offered by a seller of goods or services without the intervention of a third party offering credit. This means that in order to be exempted from the CCD in the future, sellers will have to offer BNPL products and can no longer rely on third-party BNPL providers in order to be exempted. Moreover, the deferred payment must be totally free of charge (i.e. no longer with application of ‘insignificant charges’). In case of late payments, only limited charges in accordance with national law may apply. Finally, the repayment deadline will be set at 50 days instead of three months (two months in Belgium), and at 14 days for large online suppliers.
Pursuant to the new CCD, it is not prohibited to offer a BNPL product from a third party or for a duration that is longer than 50 days (or 14 days). However, when doing so, the deferred payment will no longer be excluded from the scope and will be considered a consumer credit (with all the constrains attached to it), which also means that suppliers of goods or services will be considered an intermediary in consumer credit.
The new CCD will enter into force 20 days after it is published in the Official Journal of the European Union. EU member states will then have two years to adopt the necessary laws, and three years to apply them.
For more information on this Directive, contact your CMS client partner or CMS experts with the Banking & Finance team.
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