Topic: Mortgage Credit Directive - MCD
Summary
The Mortgage Credit Directive (MCD) is an EU framework of conduct rules for mortgage firms. The Directive creates minimum regulatory requirements that all member states must comply with to provide consistency in protecting consumers taking out credit agreements for residential property and applies to both secured credit and home loans. Member States were required to transpose its provisions into their national law by 21 March 2016. Lenders, administrators and brokers have to be authorised and hold the correct mortgage permissions.
Most of the MCD provisions are concerned with setting the minimum regulatory requirements that member states are required to meet in order to protect consumers taking out credit agreements relating to residential property. This captures residential mortgages secured against the borrower’s home and also any other lending where the purpose is to acquire or retain property rights. All mortgage lenders will be required to provide standard information on the products they provide, creating a level playing field for operators. The MCD also imposes maximum standards on member states in a few areas, in particular the provision of pre-contractual information in a standardised format. The key areas in which the MCD places requirements on member states aim to ensure that:
- mortgage firms act fairly and professionally, and that their staff have an appropriate level of knowledge and competence
- advertising of products is fair and not misleading, with certain standard information included where specific rates are being quoted
- certain information is provided to the consumer ahead of a contract being concluded
- lenders conduct an affordability test, looking at customers’ income and expenditure, to determine whether they can afford the mortgage loan
- minimum standards are followed where advice is provided to consumers
- lenders put in place additional consumer safeguards where loans are in a foreign currency, to protect the customer against exchange rate risk
- consumers are given a right to be able to exit a mortgage before it reaches the end of the term
- lenders exercise reasonable forbearance to customers in payment difficulties before initiating repossession proceedings
- it is easier for mortgage intermediaries to operate across borders
- consumers have access to cross-border redress