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A profound transformation is taking place in the consumer credit sector, driven on the one hand by the digitalization of financial services, on the other by the evolution of the European regulatory framework. In this context, the Consumer Credit Directive II (CCDII) represents a crucial step for the entire industry, imposing new challenges but also opening up opportunities for innovation and strategic rethinking.
The new European consumer credit directive, known as Consumer Credit Directive II (CCD II), was officially adopted in November 2023 and will enter into force after the transposition period by member states. The deadline for transposition is November 2025, the date by which each EU country must adapt its national legislation. CCD II introduces stricter rules on transparency, creditworthiness assessment, and consumer protection, with a focus on digitization and the prevention of over-indebtedness.
The European legislature decided to take action on consumer credit products in November 2023 with a twofold objective: first, to strengthen regulatory consistency in an increasingly digitized market, and second, to ensure greater protection for the most fragile consumers, especially young people, who are exposed to over-indebtedness risks related to facilitated access to consumer credit solutions.
The new directive takes a profoundly innovative approach, moving beyond mere preventive logic to promote a holistic view of credit, oriented toward long-term financial sustainability. In this new paradigm, the consumer must be genuinely aware of the consequences of his or her financial choices, thanks to a regulatory environment that promotes understanding and protection.
The legislature's intervention, therefore, significantly broadens the scope of application: it lowers the minimum thresholds, including micro-financing under 200 euros, and raises the ceiling from 75,000 to 100,000 euros. This is accompanied by a strengthening of transparency, disclosure and creditworthiness assessment requirements, with the aim of preventing over-indebtedness and promoting more responsible access to credit.
Prominent among the main changes introduced is the requirement for creditors to conduct a more thorough creditworthiness assessment, with the aim of ensuring that the consumer is able to repay the credit without jeopardizing his or her financial situation. This assessment extends uniformly to all forms of consumer credit, including microloans and digital products such as Buy Now Pay Later (BNPL), although there is no sanctioning apparatus for failure to conduct or inadequate creditworthiness checks. Another notable element is the prohibition of tying practices, that is, those offers in which financing is tied to the purchase of a product or service that is not available separately. This measure is intended to strengthen consumer protection by ensuring greater freedom of choice and transparency in commercial proposals.
Although it will be necessary to wait for the national transposition of the legislation, scheduled for November this year, the changes introduced will almost certainly have a direct impact on the controls that lending institutions will have to carry out, with significant repercussions on business models and market dynamics. On the one hand, it is possible that credit approval and disbursement times (time-to-yes and time-to-cash) will remain stable, after a period in which they have been steadily decreasing. In fact, for the current year, there has been a significant decline: time-to-yes for pre-approved personal loans dropped by 34 percent, while time-to-yes for full digital personal loans dropped by 33 percent (source: Research Insight Cetif Digital Lending Hub, 2024).
The industry is thus faced with balancing two potentially divergent pushes: digital innovation, which in recent years has made it possible to simplify access to credit, improve the user experience and optimize disbursement times; then, rising regulatory standards, which impose more stringent requirements in terms of transparency, accountability and consumer protection. This delicate balance between innovation and compliance represents one of the most complex challenges for consumer credit market participants. The need to comply with increasingly complex regulations could slow the adoption of agile, user experience-oriented solutions, requiring an overhaul of evaluation processes and tools. Further complicating the scenario are structural phenomena such as banking desertification: the gradual reduction in the physical presence of branches limits opportunities for direct advice, increasing the risk of products being offered that are ill-suited to consumers' real needs, with potentially negative consequences for their financial balance. The physical network, far from being a remnant of the past, still represents a fundamental garrison for ensuring financial inclusion and informed guidance, especially at a time of increasing regulatory complexity.
In this context, the strengthening of human counseling emerges as a necessary complement to the introduction of enabling technologies such as Artificial Intelligence, which are increasingly central to automating and scaling up creditworthiness assessment processes.
Today, the use of Artificial Intelligence in credit processes is no longer an option, but an unavoidable necessity to ensure scalability, timeliness, and accuracy in appraisal, disbursement, and risk management. However, even on this front, the regulatory framework is stringent: the AI Act classifies applications of automated scoring and underwriting as "high-risk," while CCDII introduces specific limits on the use of AI in consumer credit, including a ban on the use of data from social networks for creditworthiness assessment and a requirement, at the consumer's request, to ensure human intervention in automated decision-making processes. These are measures that, while strengthening protections for the end customer, also pose new challenges of technological implementation, algorithmic transparency, and accountability for industry players.
So, in a scenario where the frontier between innovation and regulation is getting thinner and thinner, the consumer credit industry is called to a profound strategic rethink. The new CCDII is not only a regulatory constraint, but also atransformational lever to build more equitable, sustainable and digital credit models. To this end, the adoption of Artificial Intelligence is no longer an option, but an enabling condition to effectively address the challenges of compliance and operational efficiency. Therefore, those who can combine the agility of innovation with the robustness of accountability will be able not only to adapt to the new environment, but to lead its evolution, helping to define a more transparent, aware and customer value-centric future of credit.