Cross-border lending – the latest revolution?

By: Caroline Poynton
Submitted: 2007-06-28 20:18:45
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Think back to major events of the 1990s and you might first think of the rise of New Labour, the unfortunate death of Princess Diana, or maybe even the first Gulf War. It was also the decade of a quiet revolution - one that has fundamentally changed our lives forever. When British scientist Tim Berners-Lee invented the worldwide web, we surely didn’t realise just how much it would impact everything in our lives, from the way we socialise and communicate, to the way we conduct and operate in business.
 

The internet was the gateway to globalisation, and its appearance paralleled other huge leaps in technology. Before the end of the decade we would all be surfing the web and calling our friends and colleagues with the latest mobile phones. In the financial services sector, however, little changed. Okay, in recent years, we have been able to check our accounts online and even pay our bills through secure websites, but we still largely rely on our local high street banks or building societies for everything from managing our day-to-day accounts to securing a loan or mortgage. But things might be changing. According to latest proposed amendments to the Consumer Credit Directive, consumers will soon be able to search the whole of the EU for the best loans. By applying a new standard format to calculate interest rates for loans and credit cards, EU diplomats and officials hope that consumers will be easily able to compare rates and secure EU loans without compromising their consumer rights. This will be supported by strict rules on the minimum level of facts and figures that must appear in advertisements, and the information consumers must be provided with when applying for credit.

What this means for you, the consumer, is the potential opening up of whole new markets and opportunities. It is still very early days and the rules need final approval by the European Parliament, but if the plans go ahead and harmonisation in lending is agreed across member states, then your local bank/building society/lender could follow the example of many other business sectors and become part of a truly global operation.

There are potential challenges, however. Some banking organisations, such as the British Bankers’ Association and the UK Payments Association (Apacs) agree to the changes in principle, but are concerned that the infrastructure isn’t in place to make it work. For example, each member state has different privacy and debt recovery rules. In addition, there is no agreement on how much compensation banks can demand from clients who repay their loans earlier than agreed.

As a consumer, you may also have some reservations about securing a loan overseas. The advantage of going local is face-to-face contact or at least an easy phone call. With EU-wide loans, there may be language problems or limited personal contact. You may also be unsure as to whether the rules and regulations you understand in the UK market would apply to loans taken overseas.

These developments are still new but vast differences in interest rates between countries across the EU could give you the chance to make huge savings in a loan deal. But you also need to ensure you thoroughly research this new and changing market. At present cross-border consumer credit accounts for just 1% of the European total - this percentage is likely to grow in the next few years. If you want to be part of this brave new world, just be sure to do your homework first.

Caroline Poynton is a financial journalist who writes for Beat That Quote about loans and other personal finance topics.

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