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Mortgage Credit Directive

Key provisions of the MCD affecting credit intermediaries Background In autumn 2019, the European Banking Authority (EBA) contacted BIPAR in preparation of its review of the Regulatory
Technical Standards (RTS) on the minimum amount of professional indemnity insurance (PII) cover for mortgage credit
The MCD is a minimum harmonisation Directive, with the exception of its provisions intermediaries.
regarding the European Standardised Information Sheet (ESIS) and the Annual The Directive on credit
Percentage Rate of Charge (APRC) that are maximum harmonisation. agreements for consumers
• Credit intermediaries are required to respect conduct of business rules relating to residential immovable BIPAR provided EBA with data in relation to:
and rules regarding knowledge and competence of staff, give general pre- • PII taken out by financial services firms like insurance intermediaries (required under the IDD, since 2016) and in
contractual information as well as personalised pre-contractual information property (“Mortgage Credit particular mortgage credit intermediaries (under the Mortgage Credit Directive - MCD, since 2016) (for example are
through the ESIS and give adequate explanations regarding the proposed Directive” or “MCD”) entered the amounts the same / higher than MCD sets out, etc.);
agreement(s). into force on 21 March 2016. • Specific numbers of PII providers, the number of contracts taken out, number & value of claims made and/or claims
• Credit intermediaries are required to comply with information requirements, The Directive aims to improve paid out, or similar.
e.g. if they offer advisory services, the fee where applicable, the existence and
-where known- the amount of commissions or other inducements. At the consumer protection measures
consumers’ request, non-tied intermediaries must give the variation in levels across the EU and establishes In March 2020, EBA published its report on the review of these RTS on PII for mortgage credit intermediaries, conclud-
of commission (consumers must be informed of the right to ask). In case of a principles for the authorisation ing that there is currently no evidence that would suggest that the PII minimum monetary amounts would need to be
combination of fee and commission, they need to mention whether they are amended. EBA adds that the claims lodged by borrowers against credit intermediaries are very limited and do not sug-
offset. The fee is communicated to the creditor for the calculation of the APRC. and registration of credit gest that the minimum amounts specified in the RTS are insufficient and require upwards adjustment.”
• Creditors and intermediaries have to explicitly inform the consumer if they intermediaries. BIPAR monitored
provide or can provide advisory services. Before the advice is provided, extra the preparatory phase of the
information has to be provided on the product range that is advised on and Directive until its adoption EBA has to review the RTS on PII every two years.
on the fee (or method of calculation) - if applicable. In case of advice, creditors
and intermediaries have to obtain the necessary information from consumers as well as the levels 2 and 3
regarding their personal and financial situation, preferences and objectives proceedings. The MCD stated that Next steps
(suitability), have to act in the best interests of consumers and have to give a the Commission should undertake The Commission had to undertake a review of the Directive by 21 March 2019. It appears that there was some delay. The
record of the recommendation. 2019 management plan of the Commission’s DG Financial Stability, Financial Services and Capital
• Creditors and tied intermediaries have to consider a sufficiently large a review of the Directive by 21 Markets Union mentions Q2 of 2019 for the award of consultancy contract(s) for this review.
number of agreements in their range in order to recommend a suitable or March 2019. The outcome of this
several suitable agreements and non-tied intermediaries have to consider a is not yet known. .
sufficiently large number of agreements in the market in order to recommend
a suitable or several suitable agreements.
• Member States may prohibit the use of the word “advice” or advisor” or similar terms for creditors and tied intermediaries
and they shall make independent advice/advisor conditional on: considering a sufficiently large number of agreements
available on the market and where the number of creditors considered is less than a majority of the market, not
be remunerated for those advisory services by one or more creditors. Member States may impose more stringent
requirements in relation to the use of the term “independent”, including a ban on receiving remuneration from a creditor.
Member States shall ensure that advisory services are only provided by creditors, credit intermediaries or appointed
representatives, although exceptions are possible.
• The Directive foresees rules regarding the admission of intermediaries (subject to PI cover, good repute and appropriate
knowledge and competence regarding credit agreements, according to an Annex of the Directive), cross-border activity
and supervision.
• The MCD also regulates cross-selling: Member States shall allow bundling but prohibit tying. Tying is however allowed
under certain conditions. A specific provision regarding cross-sales with insurance states that Member States may allow
creditors to require consumers to hold a relevant insurance policy related to the credit agreement, but creditors have
to accept the insurance policy from a supplier different to their preferred supplier where such a policy has a level of
guarantee equivalent to the one they have proposed.

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