The Government has expressed concern about elements of a European Commission plan to overhaul EU consumer protection laws which could make it more difficult for customers to keep track of the real cost of their borrowing.
At present, the Republic's 1995 Consumer Protection Act goes further than is required by an EU directive, which laid down minimum standards when it was first introduced in 1987, and amended in 1990.
In an attempt to offer common levels of protection throughout the EU, the Commission is proposing to set maximum standards, which will require amendments to the Consumer Protection Act, according to the Department of Enterprise, Trade and Employment and the Office of the Director of Consumer Affairs (ODCA).
At present, Irish consumers repaying mortgages, or buying cars, household goods or other items, use the Annualised Percentage Rate (APR) figures, which are monitored by the ODCA, to keep track of their borrowing costs.
Arguing that the APR can be calculated in a number of differing ways by different member-states, the Commission is suggesting that lenders should also be required to publish figures illustrating the total lending cost, including the costs resulting from commissions, taxes, charges paid to the lender or any intermediary, and the total borrowing cost - which would exclude all such extras.
Acknowledging the general thrust of the proposals, the Government has warned that any changes to the APR rule could cause problems if they resulted in confusion among consumers about the real rate of interest.
In addition, the proposed directive would exclude most mortgages from its protection, although the Department of Enterprise, Trade and Employment is confident that existing protections offered by the Consumer Protection Act would remain in place.
The Commission also wants to move the risk posed by endowment mortgages taken out by home-owners to release the hidden equity of their properties even though no such product is currently available on the Irish market. So far, the proposal does not affect endowment mortgages taken out to actually buy homes.
While negotiations on the new regulations began late last year in Brussels, they could take up to two years to be concluded, Mr Cathal O'Gorman, of the Office of the Director of Consumer Protection, told The Irish Times.
In a briefing note for the Oireachtas Committee on European Affairs, the Department said that the proposals would give lenders access to more information about the risk posed by a borrower; however, in return, the lender would have fewer grounds for complaint if the borrower failed to meet repayments.
This change should have little impact in the Republic, because hire-purchase companies and other lenders currently consult the Irish Credit Bureau to check the creditworthiness of a potential customer before deciding to grant credit. The bureau stores details on all people who have previously obtained a loan.
Car-lending agreements which require a "balloon payment" to cover the residual value of the vehicle at the end of the loan period would be deemed unfair if they imposed any restrictions on a customer's ability to move to another car marque.
Meanwhile, the proposals will have an impact on car-dealers, who frequently co-operate closely with finance houses. Under the plan, customers would be able to sue both the dealer and the finance house if they received faulty goods.
The Department began an "extensive round of consultations" on the EU proposals with the Irish Bankers' Federation and the Irish Mortgage and Savers' Association last September.
