CSSF Circular 24/869 Update of Circular 17/651 on Consumer Credit Agreements for Residential Property

CSSF Circular 24/869
Update of Circular 17/651 on Consumer Credit Agreements for Residential Property

CSSF Circular 24/869
Update of Circular 17/651 concerning the law of 23 December 2016 on: 1. transposition of Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014 on credit agreements for consumers relating to residential immovable property and amending Directives 2008/48/EC and 2013/36/EU and Regulation (EU) No 1093/2010; and 2. amendment of the Consumer Code (hereinafter the "law of 23 December 2016")

To all professionals subject to the prudential supervision of the CSSF Luxembourg, 24 December 2024

Dear Sirs, Madams,

We inform you that the aforementioned Circular CSSF 17/651 has been updated to take into account the modifications made by the following guidelines of the European Banking Authority (EBA):

• Guidelines 2020/06 on loan origination and monitoring (EBA/GL/2020/06), which have replaced the Guidelines 2015/11 on assessment of creditworthiness (EBA/GL/2015/11) which have become obsolete.

• Guidelines 2024/10 amending Guidelines 2015/12 on arrears and foreclosure (EBA/GL/2024/10) with the main changes concerning the following elements:
  o Directive (EU) 2021/2167 on credit servicers and credit purchasers, transposed in Luxembourg by the law of 15 July 2024, has amended Directive 2014/17/EU on credit agreements for consumers relating to residential immovable property by introducing requirements concerning the renegotiation process between the lender and the borrower before initiating foreclosure proceedings. In order to avoid duplication, the EBA has decided to delete these same provisions that existed in the guidelines (guideline 4). o The reference to the CEBS guidelines on outsourcing, which were repealed in 2019, has been updated by a reference in the new guideline 6 to the more recent EBA guidelines on outsourcing agreements1.

Please find attached the amended version of Circular CSSF 17/651.

Please accept, Dear Sirs, Madams, the assurance of our distinguished sentiments.

1 Guidelines on outsourcing (EBA/GL/2019/02)

Claude WAMPACH
Director
Marco ZWICK
Director
Jean-Pierre FABER
Director
Françoise KAUTHEN
Director
Claude MARX
General Manager

Annex Circular CSSF 17/651 concerning the law of 23 December 2016 on: 1. transposition of Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014 on credit agreements for consumers relating to residential immovable property and amending Directives 2008/48/EC and 2013/36/EU and Regulation (EU) No 1093/2010; and 2. amendment of the Consumer Code (amended version)

Circular CSSF 17/651 as amended by Circular CSSF 24/869 Concerning the law of 23 December 2016 on: 1. transposition of Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014 on credit agreements for consumers relating to residential immovable property and amending Directives 2008/48/EC and 2013/36/EU and Regulation (EU) No 1093/2010; and 2. amendment of the Consumer Code (hereinafter the "law of 23 December 2016")

Circular CSSF 17/651 as amended by Circular CSSF 24/869 Concerning the law of 23 December 2016 on: 1. transposition of Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014 on credit agreements for consumers relating to residential immovable property and amending Directives 2008/48/EC and 2013/36/EU and Regulation (EU) No 1093/2010; and 2. amendment of the Consumer Code (hereinafter the "law of 23 December 2016")

To all professionals subject to the prudential supervision of the CSSF Luxembourg, 22 February 2017

Dear Sirs, Madams,

We inform you that the law of 23 December 2016 which introduces a new chapter in Title 2 of Book 2 of the Consumer Code entitled "Chapter 6 - Real Estate Credit Agreements" (hereinafter the "Chapter 6 of the Consumer Code") entered into force on 1 January 2017, following its publication in the Mémorial A No. 302 of 28 December 2016. Chapter 6 of the Consumer Code includes Articles L. 226-1 to L. 226-45.

This circular pursues a dual objective, namely to present the main lines of Chapter 6 of the Consumer Code and to draw attention to the entry into force of certain "Guidelines" of the European Banking Authority applicable in this context. This circular also informs on the characteristics that the so-called "representative" example referred to in Article L. 226-6 (2) must present in relation to advertising concerning real estate credit agreements.

TABLE OF CONTENTS

1. Scope of application of Chapter 6 of the Consumer Code ......................................... 7

2. Competent Authority ...................................................................................................... 7

3. Information and practices preceding the conclusion of the real estate credit agreement ................. 7

4. Information on interest rates of real estate credit agreements ................................................ 9

5. Execution of real estate credit agreements and exercise of related rights ......................... 9

6. Real estate credit intermediaries ............................................................................... 10

7. Conduct rules and requirements concerning the level of knowledge and skills to which lenders and real estate credit intermediaries must satisfy................... 11

8. Implementing provisions ............................................................................................... 13

9. Scope of application of Chapter 6 of the Consumer Code
   Chapter 6 of the Consumer Code applies to:

• credit agreements secured by a mortgage, by another comparable security over residential immovable property, or by a right linked to a residential immovable property; and
• credit agreements intended to allow the acquisition or maintenance of ownership rights on land or an existing or to-be-constructed building.

2. Competent Authority
   The CSSF has been designated by the legislator as the competent authority to ensure the application and enforcement of Chapter 6 of the Consumer Code. The CSSF is also called upon to settle out-of-court disputes between consumers and lenders and real estate credit intermediaries concerning real estate credit agreements and to promote measures encouraging consumer education in responsible borrowing and debt management.

3. Information and practices preceding the conclusion of the real estate credit agreement
   Article L. 226-6 provides that any advertising concerning real estate credit agreements, which indicates an interest rate or figures relating to the cost of credit for the consumer, must mention in a clear, concise and visible manner certain information called "basic information". Article L. 226-6 (2) provides that some of this information is mentioned using a representative example whose characteristics are determined by the CSSF.

In this regard, the CSSF requires that the representative example present the following characteristics:

• the total amount of credit and the repayment duration chosen by the lender for its example must correspond as closely as possible to the characteristics of the credit agreement being advertised;
• the total amount of credit granted referred to in the representative example must be at least equal to 50,000 euros or a multiple of this amount and must not exceed 800,000 euros;
• the repayment duration is equal to five years or a multiple of five and cannot exceed thirty years;
• the advertising must specify that the representative example has the value of an example;
• the example is presented in a font size at least as large as that used for other information mentioned in the advertising;
• the example appears in the main body of the text of the advertising and cannot, for example, appear in a footnote of the advertising.

Article L. 226-8 provides that the lender, or where applicable, the real estate credit intermediary, provides the consumer with the personalized information needed to compare the credits available on the market, evaluate their implications and make an informed decision regarding the opportunity to conclude a real estate credit agreement, this by means of a standardized European information sheet called "ESIS".

Article L. 226-8 (2) provides that the ESIS is included in a Grand Ducal Regulation. The CSSF wishes to clarify in this regard that the Grand Ducal Regulation of 23 December 2016 amending the regulatory part of the Consumer Code which was published on 28 December 2016 in the Mémorial A introduces the ESIS form and provides explanations on this subject. The aforementioned Grand Ducal Regulation of 23 December 2016 can be consulted on the Legilux site:
https://legilux.public.lu/eli/etat/leg/loi/2016/12/23/n24/jo

Articles L. 226-9 and L. 226-10 further provide explanations and information on real estate credit agreements that the lender, or where applicable the real estate credit intermediary, provides to the consumer.

Articles L. 226-12 and L. 226-13 provide provisions relating to the assessment of the consumer's creditworthiness. In this regard, the CSSF wishes to draw the attention of lenders to the fifth paragraph of Article L. 226-12 according to which the lender may only grant the credit that the consumer has requested if the result of the creditworthiness assessment indicates that the obligations arising from the real estate credit agreement will likely be respected in accordance with what is provided for in said agreement.

It should be noted in this context that the European Banking Authority published on 29 May 2020 the "EBA Guidelines on loan origination and monitoring" (ref. EBA/GL/2020/06) (hereinafter the "Guidelines 2020/06"). Guidelines 2020/06, which were implemented by Circular CSSF 22/824, specify the internal governance devices, processes and mechanisms, credit and counterparty risk requirements, as well as requirements relating to the assessment of the consumer's creditworthiness.

Guidelines 2020/06 provide in particular clarifications concerning:

• The assessment of the borrower's creditworthiness notably through sensitivity analyses to take into account potential negative events;
• The assessment of the borrower's current and future ability to meet its obligations under the loan agreement, which includes notably an assessment of the borrower's repayment source, taking into account the specifics of the loan, such as its nature, maturity and interest rate and also taking into account incurred expenses and other non-discretionary expenses;
• The documentation and retention of information allowing the credit analysis, including necessary verifications to ensure the accuracy and reliability of the information.

Guidelines 2020/06 are available on the European Banking Authority site:
Guidelines on loan origination and monitoring | European Banking Authority

It should be noted in this context that the European Banking Authority published on 19 August 2015 the "EBA Guidelines on assessment of creditworthiness" (ref. EBA/GL/2015/11) (hereinafter the "Guidelines 2015/11"). Guidelines 2015/11 aim to provide clarification on lenders' requirements regarding the assessment of the consumer's creditworthiness. More precisely, Guidelines 2015/11 aim in particular to provide details on the requirements set out in Article 18 and Article 20 (1) of Directive 2014/17/EU in order to assess the creditworthiness of consumers for credit agreements falling within the scope of Article 3 of Directive 2014/17/EU.

Guidelines 2015/11 provide clarification concerning:

• verification of the consumer's income;
• documentation and retention of information;
• detection and prevention of erroneous information;
• assessment of the consumer's ability to meet its obligations under the credit agreement;
• recognition of incurred expenses and other non-discretionary expenses of the consumer;
• recognition of possible future negative scenarios.

Guidelines 2015/11 are available on the European Banking Authority site:

4. Information on interest rates of real estate credit agreements
   It should be noted that Articles L. 226-16 and L. 226-17 provide specific provisions regarding information to the consumer on modifications of the interest rate and on variable rate credits.

Furthermore, Article L. 226-19 provides that the mathematical formula to be used to calculate the APR as well as the additional assumptions to be used, where applicable, for the calculation of the APR are fixed by Grand Ducal Regulation. The CSSF wishes to clarify in this regard that the Grand Ducal Regulation of 23 December 2016 amending the regulatory part of the Consumer Code which was published on 28 December 2016 in the Mémorial A provides the mathematical formula for the calculation of the APR and the additional assumptions that may prove necessary for the calculation of the APR. The aforementioned Grand Ducal Regulation can be consulted on the Legilux site:
https://legilux.public.lu/eli/etat/leg/loi/2016/12/23/n24/jo

5. Execution of real estate credit agreements and exercise of related rights
   Article L. 226-20 expressly grants a right to early repayment to the consumer and provides provisions regulating this right.

Furthermore, it should be noted that the European Banking Authority published on 19 August 2015 the "EBA Guidelines on arrears and foreclosure" (ref. EBA/GL/2015/12) subsequently amended by Guidelines 2024/10 (hereinafter the "Guidelines 2015/12"). Guidelines 2015/12 aim to improve the protection of consumers facing payment difficulties. More precisely, Guidelines 2015/12 aim to provide details on the requirements set out in Article 28 of Directive 2014/17/EU for credit agreements falling within the scope of Article 3 of Directive 2014/17/EU.

Guidelines 2015/12 provide clarification concerning:

• the implementation of policies and procedures;
• cooperation with the consumer;
• the provision of information and assistance to the consumer;
• the settlement process in case of repayment difficulties;
• the documentation of interactions with the consumer and the retention of files;
• outsourcing.

Guidelines 2015/12 are available on the European Banking Authority site:
Guidelines on arrears and foreclosure | European Banking Authority https://www.eba.europa.eu/documents/10180/1163130/EBA-GL-2015-12_FR_GL+on+arrears+and+foreclosure.pdf/e79e9341-71d8-4e26-818d-5438d76bcb4d

6. Real estate credit intermediaries
   Section 5 of Chapter 6 of the Consumer Code introduces the real estate credit intermediary into Luxembourg legislation and determines the conditions to be met to obtain approval as a real estate credit intermediary. It should be noted that the CSSF has received the mission to process approval applications, with approvals granted by the Minister responsible for the Financial Sector.

The supervision of the activities of approved real estate credit intermediaries in Luxembourg falls under the competence of the CSSF.

Furthermore, Articles L. 226-30 and L. 226-31 concern the establishment of branches and the free provision of services by real estate credit intermediaries.

It should be noted in this regard that the European Banking Authority published on 19 October 2015 the "Guidelines on passport notifications for credit intermediaries under the mortgage credit directive" (ref. EBA/GL/2015/19) (hereinafter the "Guidelines 2015/19"). Guidelines 2015/19 aim to provide details on the notification requirements for passporting set out in Article 32 of Directive 2014/17/EU.

Guidelines 2015/19 provide clarification concerning:

• the exercise of the free provision of services;
• the exercise of the freedom of establishment;
• the transmission of the notification;
• registration;
• the notification of modifications made to the information contained in the initial notification.

Guidelines 2015/19 are available on the European Banking Authority site:
Guidelines on passport notifications under MCD | European Banking Authority https://www.eba.europa.eu/documents/10180/1234355/EBA-GL-2015-19_FR_GL+on+passport+notifications+under+MCD.pdf/c104d161-389c-413b-bea4-6c0a916938dc

7. Conduct rules and requirements concerning the level of knowledge and skills to which lenders and real estate credit intermediaries must satisfy
   Article L. 226-36 mentions in particular general conduct rules to which lenders and real estate credit intermediaries must satisfy.

In this context, it should be noted that the European Banking Authority published on 22 March 2016 the "Guidelines on product oversight and governance of retail banking products (POG)" (ref. EBA/GL/2015/18) (hereinafter the "Guidelines 2015/18") which aim inter alia at Directive 2014/17/EU on credit agreements for consumers relating to residential immovable property. Guidelines 2015/18 aim to provide clarification on the requirements regarding governance and oversight of retail banking products. More precisely, Guidelines 2015/18 aim in particular to provide details on the requirements regarding governance and oversight of products set out in Article 7 (1) of Directive 2014/17/EU.

Guidelines 2015/18 provide clarification regarding the methods of governance and oversight of products notably for credit product producers concerning:

• the implementation, proportionality, revision and documentation;
• the internal control functions of producers;
• the target market;
• product testing;
• product monitoring;
• corrective measures;
• distribution channels;
• information intended for distributors.

Guidelines 2015/18 further provide clarification regarding the methods of governance and oversight of products notably for credit product distributors concerning:

• the implementation, proportionality, revision and documentation;
• the governance of distributors;
• the knowledge of the target market;
• information on the producer's methods and support for these.

Guidelines 2015/018 are available on the European Banking Authority site:
Guidelines on product oversight and Governance |European Banking Authority https://www.eba.europa.eu/documents/10180/1412678/EBA-GL-2015-18+Guidelines+on+product+oversight+and+Governance_FR.pdf/5bb3037c-2dda-403f-88fe-15d5631c0fea

Article L. 226-36 further provides requirements concerning the remuneration policy of the personnel of lenders and real estate credit intermediaries.

The European Banking Authority, on this subject, published on 13 December 2016 the "Guidelines on remuneration policies and practices related to the sale and provision of retail banking products and services" (ref. EBA/GL/2016/06) (hereinafter the "Guidelines 2016/06"). Guidelines 2016/06 aim to provide clarification on the requirements regarding remuneration policies and practices related to retail banking products and services. More precisely, Guidelines 2016/06 aim in particular to provide details on the requirements regarding remuneration policies and practices set out in Article 7, paragraph 2 of Directive 2014/17/EU.

Guidelines 2016/06 provide clarification regarding remuneration policies and practices concerning:

• their development;
• their documentation, notification and accessibility;
• their approval;
• their monitoring.

Guidelines 2016/06 are available on the European Banking Authority site:
Guidelines on sales staff remuneration | European Banking Authority https://www.eba.europa.eu/documents/10180/1693444/Guidelines+on+sales+staff+remuneratio n+%28EBA-GL-2016-06%29_FR.pdf/5a7b5764-e554-4d7a-a691-7e3986a75f04

Article L. 226-38 provides the minimum requirements concerning the level of knowledge and skills to which the personnel of lenders and real estate credit intermediaries must satisfy in particular in relation to real estate credit agreements.

Article L. 226-38 (3) provides that until 21 March 2019, the minimum requirements concerning the level of knowledge and skills are deemed to be met when the persons concerned justify professional experience of at least three years in the fields related to the granting, distribution and intermediation of credit products.

8. Implementing provisions
   The CSSF is invested with a power of sanction regarding the respect of certain provisions of Chapter 6 of the Consumer Code.

It should be noted that the provisions of Chapter 6 of the Consumer Code are mandatory and that the consumer may request the nullity of any clause or

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