Negotiation & Signature

On 5th March 2001, the European Banking Sector Associations, led by the European Mortgage Federation, and the Consumer Organisations, signed the European Agreement on a Voluntary Code of Conduct for Pre-contractual Information on Home Loans (the Code). The negotiations, as well as the signature of the Agreement, were conducted under the aegis of the European Commission, which endorsed the Code through a Recommendation dated 1st March 2001.

The Code is the result of a long political evolution, triggered by an invitation from the Commission, from which self-regulation emerged as an interesting alternative to the regulatory approach.

Objective & Coverage

The objective of the Code is to improve and standardise consumer information and help prospective borrowers choose the mortgage loan best suited to their needs. By standardising the information, the Code is intended to help develop cross-border mortgage transactions and boost competition in the European mortgage markets.

The Code covers “credit to consumers for the purchase or transformation of the private immovable property he owns or aims to acquire, secured either by a mortgage on immovable property or by a surety commonly used in a Member State for that purpose”. This definition excludes loans for commercial purposes and loans regulated by the 1987 Consumer Credit Directive.

Adherence to the Code commits banks to disclose to the consumer certain essential pieces of information, i.e. general information at marketing stage and personalised information, the European Standardised Information Sheet (ESIS), at a stage, where the bank is in possession of the consumer’s personalised information, and which allows the consumer to shop around. The first set of information requirements is compulsory but not standardized whereas the second set of information is compulsory and standardised. The ESIS is a summary of the loan conditions; it includes the main cost elements of a mortgage offer and is designed to serve as a means of comparison of mortgage offers for the candidate borrower.

Monitoring of Uptake & Effectiveness

The European Commission has played an important role in the adoption of the Code by participating in the negotiations, by adopting a Recommendation endorsing the Code and finally by running the Register of adhering institutions to monitor the implementation of the Code (http://ec.europa.eu/internal_market/finservices-retail/home- loans/code_en.htm#register). It was also responsible for the publishing of a report to assess the implementation of the Code. Indeed, according to the Agreement and the Recommendation, the Commission was to monitor the uptake and effectiveness of the Code and review its operation throughout the EU Member States two years after the adoption of its Recommendation endorsing the Code i.e. by March 2003. To this end, the Commission was to rely on both the Industry’s Annual Progress Report, presented in March 2003, and its own monitoring results i.e. an external study to be carried out by an independent consultant appointed by the Commission.

First Industry Progress Report on Implementation

As foreseen by the Agreement as endorsed by the Commission’s Recommendation, the Industry Progress Report was based on the reports of the National Associations, which are members of the Industry Signatories to the Agreement. The European Banking Sector Associations endeavoured to ensure that the Report was as complete as possible, comprising not only the extent of registration and implementation by EU credit institutions, but also the coverage given to the Code in the different Member States, the types of loans it encompasses and the various ways in which it is published.

The Report concluded that the results at the end of 2002 were satisfactory, with some 95-100% of the national market in a majority of Member States having registered. Furthermore, the large majority of registered institutions in a majority of Member States had implemented the Agreement. Despite these results, the Industry did acknowledge that there was room for improvement, particularly in terms of the ‘missing’ MS.

Commission’s External Survey on Implementation: IFF Consultant’s Report

In February 2003, the Commission appointed a consultant to assess the level of implementation of the Code. The Consultant’s Report, which was published in August 2003, proved to be very negative in its conclusions and reported a very low level of implementation. The Industry was extremely concerned by the results and, in an official joint response to the Commission in November 2003, questioned the neutrality of the Consultant, his understanding of national specificities and the methodological accuracy of the national reports. At the end of 2003, the Commission announced that as part of its assessment of the Code’s implementation (in accordance with its Recommendation) and in addition to its own analysis of the Industry and Consumer responses, as well as the Consultant’s Report, the Forum Group on Mortgage Credit would be given the task of examining the issue of precontractual information and of presenting a set of policy recommendations on the Code’s future, which it did in December 2004. Further to positive feedback in the Forum Group Report and subsequent indications from DGs Markt and Sanco at the end of 2004 that they would grant the Code the necessary time to prove its efficiency, EBIC Member Associations agreed to publish a second progress report on implementation.

Second Industry Progress Report on Implementation

The Industry’s Second Progress Report included three new aspects to be considered with a view to strengthening the Code’s efficiency and voluntary status. The consultation, which was conducted in parallel in EBIC Member Associations that are signatories of the Code, shows the following results on these issues: In a majority of Member States, the Industry would support the formal extension of the Code of Conduct to include Mortgage Equity Withdrawal, as a counterpart to their exclusion from the Consumer Credit Directive. Similarly, based on their importance in the loan-granting process, in a majority of Member States, the Industry would support a proposal to extend the application of the Code to cover credit intermediaries. However, there was very little support for the establishment of a European Compliance Board. The results of the consultation would appear to indicate a preference for the use of existing mechanisms, such as Out of Court schemes, at national level.

On a general level, the results of the consultation indicate that adhesion to and implementation of the Code is encouraging in 19 Member States (including five New Member States, the Czech Republic, Estonia, Cyprus, Hungary and Malta) and Norway.

Current State of Play

As far as the current state of play is concerned, the Code of Conduct has been included in the Commission’s reflections on the integration of Europe’s mortgage markets and in this respect the Code was one of the topics discussed in the context of the Commission’s Mortgage Industry & Consumer Dialogue Group (MICDG) (see above).