A comparative analysis of the US and EU retail banking markets - Wsbi

As far as the scope of regulatory framework is
concerned, there are some similarities between the
two legal regimes; both the US Consumer Credit
Protection Act and the EU Directive on Consumer
Credit contain a number of exemptions, for example
consumer credits of an amount higher than a fixed
ceiling (€20,000 in the EU and $25,000 in the US)
and loans taken by consumers for (primarily)
professional purposes. Moreover, the US Act does
not apply the rules to credit granted to other than a
natural person (i.e. unions, trusts, partnerships) and
although this is also the case in the EU Directive,
some Member States have extended the protection to
some legal persons. Some exemptions are however
present in the US Act which are not present in the
EU Directive, notably credits extended by a brokerdealer
for transactions in securities or commodities
accounts if the broker is registered with the SEC or
the Commodities Futures Trading Commission.
Usury or ceiling interest rates are not regulated at the
EU level and in fact only few Member States have
introduced them. In the US on the other hand,
the deregulation of usury rates, as a result of the US
Supreme Court ruling, led to increased competition
and wider access to credit at different prices. In the
EU, in cases where the national law of a Member
State has introduced legal caps on usury rates,
lenders offering credits to consumers domiciled in
that Member State are obliged to adapt their interest
rate in accordance with such legal caps. This would
indicate that while in the EU, the principle of host
law applies (the applicable law is the one of the
Member States where the consumer resides), in the
US the principle of home law of the bank applies.
6.2.1.3.3 Information disclosure and duty to advise
Information disclosure is a cornerstone of consumer
protection in both the EU and US legal systems.
An important number of US laws applicable to
consumer credit focus on appropriate and transparent
information for consumers. The Truth in Lending Act
in particular regulates in great detail the list of
information lenders are required to provide depending
on the type of credit transaction. The EU policy on
consumer protection also considers essential the
provision to consumers with adequate information
to allow them to make an informed choice.
The information disclosure regime under the EU
Directive on consumer credit is less detailed than the
Truth in Lending Act. This might be explained by the
fact that the ultimate aim of the current Directive is
to set a number of common requirements – via a
minimum level of harmonisation – above which
Member States can (and indeed do) legislate further.
There are some similarities which can be found in
a general comparison between the US and EU
information disclosure regimes. For example, in both
regimes the provisions on credit cost disclosure (total
cost of credit, APRC, etc) are considered essential
to ensure appropriate consumer information.
The challenge remains to offer consumers the right
amount of information at the appropriate moment and
as clearly, concisely and transparently as possible.
It is worth noting that the use of a visible information
box to place key information (already introduced
in the US system under the name “SFederal” Boxy)
is a proposal submitted by the European Parliament
in its first reading on the Consumer Credit
Directive proposal.
Another proposal for the revision of the existing
EU Directive is the introduction of a duty to advise.
The Truth in Lending Act targets information
disclosure but it does not require lenders to advise
consumers on the most appropriate type of credit.
This approach seems to be coherent with a high level
of information policy which ensures that consumers
receive all the necessary information in order that
they can make the best choice. In contrast, the EU
legislator has proposed to introduce a duty to advise
even if the overall policy is to encourage consumers
to make informed decisions by providing them with
adequate information.
6.2.1.3.4 Credit databases and credit bureaus
The size of the US credit data market, in terms of
market players and number of transactions, seems to
be much larger than the EU market. The fact that
credit data is sold not only to financial institutions
but also to employers, landlords of rental property,
etc, illustrates the large use of credit bureaus services
in the US. This also explains the fairly detailed and
sensitive information (e.g. fiscal, judicial information)
contained in a typical US credit data report.
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