12 October 2015
The European Banking Authority (EBA) published today a Consultation Paper on its proposed benchmark rate under the Mortgage Credit Directive (MCD), which requires creditors to create two illustrative examples in the European Standardised Information Sheet (ESIS) for variable rate mortgages on the basis of a benchmark rate specified by the EBA. To that end, the EBA has developed a formula to calculate the rate and would now like to hear the views from consumer and industry stakeholders on the approach it is proposing. The consultation runs until 20 November 2015.
In Annexes I and II, the MCD sets out the information that creditors must include in the ESIS. This includes information about the interest rate and other costs, and specifically requires that, for a variable borrowing rate, the ESIS includes a warning that the variability could affect the actual level of the Annual Percentage Rate of Charge (APRC). The warning shall be accompanied by an illustrative example of the APRC. In addition, under the heading of "Amount of each instalment", the ESIS must include a statement indicating that the borrowing rate is variable and an illustration of a maximum instalment amount.
The MCD provides that in certain circumstances the two illustrative examples are to be calculated by creditors using a benchmark rate specified by the EBA. In order to fulfil this task, i.e. to calculate the illustrative example of the APRC and the illustrative instalment amount for the ESIS, the EBA has developed a draft formula with which creditors are to calculate the rate.
By producing a formula instead of a single rate, the EBA seeks to ensure that its rate is representative of national circumstances. The formula uses as input an underlying rate that is specific to each Member State, either the European Central Bank (ECB) rate for Eurozone countries or the Member State's central bank rate for non-Eurozone countries.
The EBA wishes to hear the views of consumer, industry and other interested stakeholders on whether the proposed benchmark rate will achieve the purpose stated in the MCD and whether it will succeed in illustrating to consumers the potential variability of their mortgage borrowing rate.
Once finalised, the formula will be published on the EBA's website prior to entry into force of the MCD on 21 March 2016.
Comments to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 20 November 2015.
The Directive 2014/17/EU on credit agreements for consumers relating to residential immovable property (Mortgage Credit Directive - MCD) was published in the Official Journal of the Commission on 28 February 2014, with a transposition date of 21 March 2016.