The EBA publishes results from its first fact finding exercise on creditworthiness assessment practices of non-bank lenders

The European Banking Authority (EBA) published today the results of a fact finding exercise on the creditworthiness assessment (CWA) practices of non-bank lenders (NBLs). The exercise is a follow-up to the Consumer Trends Report published in April 2023 and aimed at gaining insight into the extent to which NBLs contribute to over-indebtedness and arrears. The EBA finds that, while some NBLs might service segments of the population that may have limited opportunities to access traditional banks for credit, a significant number of the surveyed NBLs appear to apply inadequate practices for information gathering and verification during their CWAs.

The Report also finds that the lack of a harmonised definition of NBLs and a harmonised authorisation framework in the EU contribute to different types of NBLs being supervised in different ways across EU Member States. Consequently, different rules apply to entities that are of a similar kind across the EU.

Furthermore, the Report finds that many National Competent Authorities have taken supervisory actions in respect of NBLs, but the surge in the number and significance of these entities increases the need for specialised resources dedicated to the monitoring of non-bank lending activities.

In terms of market trends, the Report shows that the proportion of credit granted under the Consumer Credit Directive by the surveyed NBLs between 2020 and 2023 overall increased, with a peak of 43% in 2021. In the same period, the proportion of loans granted under the Mortgage Credit Directive by the surveyed NBLs decreased from 58% to 45%.

The EBA will continue monitoring the activities of NBLs through its biennial Consumer Trends Report and may consider, depending on the findings and the need, initiating further ad hoc action to foster further protection of EU consumers.

Legal basis and background

The EBA is mandated under Article 9 of its founding Regulation to, inter alia, collect, analyse, and report on consumer trends. To that end, the EBA publishes a biennial Consumer Trends Report, with several editions identifying indebtedness as one of the key issues that causes significant detriment to consumers in the EU, with the last edition indicating that NBLs and their CWA practices may play a significant role in contributing to this recurrent issue.

In order to gauge insight of the CWA practices applied by NBLs in respect to credit products falling under the Consumer Credit Directive and/or the Mortgage Credit Directive, the EBA carried out a fact finding exercise with National Competent Authorities that chose a sample of 125 NBLs from across the EU to include in the exercise, and using the reference period between 2020 and 2023.