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The European Parliament has backed new rules to make it easier and ultimately cheaper for European consumers to borrow money outside across borders. The main effect will be to provide standard, comparable information to customers across the EU taking out a credit loan.

At the moment, two out of three Europeans use credit to buy furniture, washing machines or cars, but they can only use financial products that are available through their national market.
Although it represents about a fifth of banking income, just 1 per cent of the €800 billion annual market is cross-border. Interest rates on loans can vary from 6 per cent in Finland to 12 per cent in Portugal even though both countries are in the euro zone where the European Central Bank sets a single basic interest rate.

• Under the consumer credit directive, annual percentage rates (APR) will be calculated in the same way across Europe.
• Standard information on loan conditions will make it easier to calculate the total cost of a loan offered by various banks;
• Once consumers have negotiated a loan, they will have a 14-day cooling-off period in which they can cancel without having to give a reason and without any charge. Fewer than half of EU countries give consumers this right at the moment.
• Borrowers will have the right to pay off loans early. Lenders will be able to charge them only 1% of the amount paid off early in compensation. For loans with less than a year to run, compensation to lenders is capped at 0.5%. For example if a consumer takes out a 10,000-euro loan to buy a car and pays off 1,000 euros ahead of schedule, the maximum penalty they would have to pay to the lender would be 10 euros.
• The rules cover personal loans between €200 and €75,000, and are intended to open up the market across national borders. National rules will still apply to loans above €75,000
• They do not apply to deferred payment cards, such as credit cards and store cards And it will not cover mortgages.

An article in The European weekly New Europe quotes EU Consumer Commissioner Meglena Kuneva “At the moment, trying to compare different credit offers across the European market is like trying to compare apples and pears.”

Critics countered that consumers and lenders would face more red tape despite six years of debate to streamline the regulations fearing that The new rules will make the market more transparent for consumers and business competitors.

The bill would see continental companies offering loans in the UK, leading to an increase in competition and the lowering of costs for British consumers.

Europe is poised to make it easier for people looking for consumer credit to shop all over the continent for the best deal but what implications will this have on the UK consumer?

Although the new legislation which is expected to take effect in 2010 will give consumers more choice it will be swiftly followed by a deluge of advertisments for loans from other countries within the EU which could only lead to added confusion for the consumer.

Additionally there are also marked cultural differences. According to a 2006 report by Datamonitor, a research group, the average Briton owed £3,174 in unsecured debts - such as loans and credit cards - around double the rate of £1,558 in the rest of the EU. Therefore the rules could help UK lenders expand beyond their saturated home market. On the other hand it might work the other way as although these plans aim to encourage people to shop for loans, consumers could be tempted to take on more debt than they could handle. More choice must go hand in hand with consumer protection and safeguards must be incorporated to ensure companies across Europe donít lend irresponsibly.

Another concern which could prevent people from shopping around when buying financial services such as loans in another EU country is the language and currency barriers.

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