The Government Draft for the Implementation of the Consumer Credit Directive
Table of Contents
Consumer Borrowing and How It Has Been Transformed by Digitalisation
Ever since people started shopping online, the credit business has also undergone significant changes. Germans have been buying on account from the Otto catalogue since the 1950s. In essence, this is nothing other than a short-term microloan. What has changed with online shopping, however, is the ubiquitous availability of such credit: accessible across various shops and concluded with just a few clicks. Instalment purchases and buying on account are just a few good examples of how digitalisation has made borrowing easier and more widespread. Under the term “Buy Now Pay Later”, these payment methods have become well-established throughout Europe. You buy now but only pay later. For most consumers, this is above all convenient.
On the websites of “Buy Now Pay Later” providers, one often reads that approximately 80 percent of customers are more likely to make a purchase if they do not have to pay immediately. “Buy Now Pay Later” is promoted as the easy method to stretch liquidity. If someone has to shell out a three-digit amount at the end of the month for a new dining table, they may reconsider whether the purchase is necessary right now. The option to pay for the elegant glass living room table only a few weeks later, once the salary has arrived, might then influence the purchase decision. For this reason, merchants often offer deferred payment free of charge. In turn, merchants mostly do not finance “Buy Now Pay Later” themselves but via third parties – such as Klarna or Ratepay.
The online credit business has long since attracted the attention of consumer protection groups. Statistically, “Buy Now Pay Later” appears to be used particularly for small to medium-sized amounts. The German consumer advice centre states that 44 percent of purchases in the price range of €51 to €200 are made using “Buy Now Pay Later”. They warn of a debt trap, the Tagesschau warns of “pitfalls”, and the AOK warns of compulsive buying. On TikTok, one can find countless clips under the hashtag “#klarnaschulden”, where young people share their personal experiences with “Buy Now Pay Later”. Germany’s Federal Financial Supervisory Authority (BaFin) also addresses the issue in its consumer information and warns of a debt trap.
Against this societal backdrop, lawmakers are now undertaking a comprehensive reform of consumer credit laws as part of the Consumer Credit Directive. Consumers are to be better protected from taking out credit lightly in the digital realm – including microloans and interest-free loans. The reasoning is that the ease of taking out small loans may lead to impulsive purchases.
New Problems Require New Laws: The Consumer Credit Directive and Its National Implementation
Legal Basis in EU Law
The European legislator acted some time ago and issued a new Consumer Credit Directive (Directive (EU) 2023/2225), based primarily on Articles 114 and 169 TFEU.
The directive largely results in full harmonisation. Full harmonisation refers to a legislative approach where the European legislator does not grant any discretion to national legislators. This is generally the assumption for the Consumer Credit Directive, with national discretion only permitted in exceptional and justified cases (Article 42 of Directive (EU) 2023/2225). Further details can be found in Article 2 of the Directive, which defines the scope. Additionally, most consumer protection provisions are non-negotiable and cannot be waived by the consumer (Article 43).
Legislative Procedure
The German Federal Ministry of Justice and Consumer Protection presented a draft bill (Referentenentwurf) as early as June. This was initially just the Ministry’s proposal. Stakeholders had the opportunity to comment until mid-July. Based on this, the final draft (Regierungsentwurf) has now been developed (available here). However, the differences between the two drafts concern mainly technical details that are of minor economic relevance. The BMJV also provides a factsheet for those in a hurry, which outlines the key changes (available here, especially point 10). In any case, the law will soon go through the legislative process in the Bundestag. Member States have until mid-November 2025 to enact the implementing regulations; one year later, they are to become applicable (Article 48 of Directive (EU) 2023/2225).
Delineation and Transition
The changes particularly affect provisions in the German Civil Code (BGB) concerning consumer credit. Consumer protection provisions are being significantly extended in scope to better address digital lending. Numerous other laws are affected: in the Introductory Act to the Civil Code (EGBGB), pre-contractual information obligations will be amended. The Act Against Unfair Competition (UWG) will include stricter rules for advertising general consumer credit agreements; lenders must indicate costs and certain forms of advertising will be explicitly prohibited. Further changes concern supervisory law. A new law on sales financing will subject suppliers of goods or services who offer sales financing to regulation.
What Will Change in the BGB, KWG and Other Laws under the Implementation Draft?
Amendments to the BGB (German Civil Code)
The most significantly reformed area concerns consumer credit agreements (§§ 491 et seq. BGB). The legislator aims to expand the scope of consumer protection to credit forms previously unregulated. In future, interest-free loans, short-term loans, microloans under €200 and corresponding payment deferrals will also fall under §§ 491 et seq. BGB. Of particular practical relevance is the inclusion of so-called one-click loans within “Buy Now, Pay Later” models, widely offered by providers such as Klarna, PayPal & Co. Small and medium-sized enterprises (SMEs) will continue to benefit from the privileges granted under EU law and may – under certain conditions – offer interest-free loans without being subject to stricter regulatory requirements.
The tightened creditworthiness assessment under § 505b (2) BGB-RegE is intended to more effectively protect against (creeping) over-indebtedness. However, § 505b (2) BGB-RegE requires interpretation, as it imposes certain information requirements (e.g. regarding income), while at the same time introducing a principle of proportionality – both of which are in tension. Without clarification from the legislator, it remains unclear whether minor loans, such as those within the “Buy Now, Pay Later” sector, always require extensive self-disclosure or whether streamlined assessment procedures suffice. In other words: does buying a pair of €200 sneakers via “Buy Now, Pay Later” require disclosing one’s income? That would make the payment method significantly less attractive for privacy-conscious consumers. The draft states that, for estimation purposes – without establishing a legal presumption – loans of up to €1,000 are generally subject to creditworthiness checks based on existing information, such as a self-disclosure or data already held by the lender.
However, the draft also introduces a simplification of form requirements. A new § 492 (1) BGB stipulates that general consumer credit agreements require only text form.
Amendments to the KWG (Banking Act), GewO (Trade Regulation Act), and the Sales Financing Supervision Act (AbsFinAG)
§ 18a KWG-RegE incorporates creditworthiness assessments from a regulatory perspective. The standards for real estate consumer loans are to apply to general consumer credit agreements as well: contracts may only be concluded if the borrower is likely to be able to repay the loan. § 18a (3) and (4) KWG-RegE lay down the foundation of credit assessments. Decisions must be based on accurate and relevant information regarding income, expenses, and other financial circumstances; both internal and external sources are permitted, but social networks are excluded. The extent and depth of information must correspond to the type, amount, duration, and risk of the loan.
§ 34k GewO-RegE introduces an independent licensing requirement for credit intermediaries, who were previously grouped with real estate agents and property developers under § 34c GewO. The licence requirement now also includes financing aids under § 506 BGB-RegE, effectively broadening the scope of authorisation.
The draft Sales Financing Supervision Act (AbsFinAG-RegE) establishes a new regulatory regime. Its goal is to include suppliers and providers of payment deferrals – who previously did not fall under traditional financial regulation – within the supervisory framework (cf. §§ 1 and 2 AbsFinAG-RegE). The question of the responsible supervisory authority remains open.
Further Legal Implications
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Impact on Data Protection and Data Processing
The draft bill touches on various data protection issues. Particularly noteworthy is the creditworthiness assessment, which regularly involves processing and transferring sensitive personal data. Central here is § 30 (6) BDSG-RegE, which grants the right to a human decision instead of an exclusively automated credit decision. This includes the possibility of having an automated credit decision reviewed by a natural person.
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Amendments to the Act Against Unfair Competition (UWG)
The UWG provisions for advertising general consumer credit agreements will be tightened. Lenders will be required to clearly indicate that loans involve costs – for instance, with phrases such as: “Warning! Borrowing money costs money!” or “Warning! Financing comes at a cost!”
Moreover, certain forms of advertising will be outright prohibited. This includes ads that suggest a loan would increase wealth, replace savings, or improve one’s standard of living. The aim is to prevent consumers from perceiving loans as inherently beneficial.
Critical Evaluation of the Proposed Reforms
Industry associations have been actively involved in the legislative process. Their statements can be accessed on the BMJV website. Since the directive largely mandates full harmonisation, discussions focused only on the few legal areas where national discretion remains. Several financial sector associations criticised the original draft for “gold-plating” – meaning overly strict implementation. The government draft has not resolved core disputes between interest groups. This applies particularly to the potential removal of the written form requirement in § 492 (1) BGB n.F., which the BMJV refers to as a “German peculiarity”.
In this context, it remains to be seen how much legal uncertainty the reform will bring. In addition to the already mentioned creditworthiness checks, this also affects a new leniency provision in § 497a (2) BGB, which states that lenders must exercise “reasonable leniency” before initiating enforcement proceedings.
What is the political rationale behind the reform of consumer credit law? It is the European legislator’s response to a perceived societal shortcoming. The need for action is clear: no one wants young people to incur debt en masse before even entering working life.
But is consumer credit law truly the key lever to solve this problem? That remains questionable. The business models now facing stricter rules are often either cost-neutral or low-cost for consumers. At most, they may increase the temptation to buy something one can’t really afford. Yet the lack of judgement in consumption decisions likely has other causes: social media consumer culture and insufficient financial education.
The increasing regulation of financial products must also be critically monitored because it leans towards conservatism and may hinder innovation in the financial sector. The functional equivalent to modern “Buy Now Pay Later” is the classic overdraft. If modern credit products become harder to access, consumers may still end up in debt through old-fashioned means. For most, “Buy Now Pay Later” or short-term microloans are the better options – because they are typically cheaper than overdrafts. One might want to tell the legislators: digital lending is not the enemy.
The political debate over consumer credit regulation is, for these reasons alone, worth following closely in the coming years. Borrowing will noticeably change for many people. From a legal perspective, however, the ideological debate over whether the consumer is self-determined or in need of protection should remain secondary. In any case, it is essential for anyone interested in digital finance to engage with the Consumer Credit Directive and its national implementation. We’ll keep you updated on this in future blog posts.
