Study by Prof. Dr. Kai-Oliver Knops reminds of consumer protection in the area of overdraft facilities

12 September 2022

Consumer protection in relation to agreed overdrafts and tolerated overrunning is the subject of the study by Prof. Dr. Kai-Oliver Knops (University of Hamburg) for the Internal Market and Consumer Protection Committee (IMCO) of the European Parliament, published in September 2022 at the following link:
https://www.europarl.europa.eu/RegData/etudes/STUD/2022/733969/IPOL_STU(2022)733969_EN.pdf. 

With the collaboration of Calvin Fromm, research associate at the Chair of Civil and Commercial Law of Prof. Dr. Knops, the study elaborates the connection of agreed overdrafts and tolerated overdrafts with the overindebtedness of private households as well as the at least partly excessive interest rates in the individual member states of the European Union. Against the background of these elaborated empirical findings and with a view to the upcoming revision of consumer credit law, Prof. Dr. Knops explains:
"In view of the large number of agreed overdrafts and, in particular, tolerated overdrafts that are not even covered by the currently applicable consumer credit directive, but also in view of inadequate precautions against excessive interest rates, among other things, the bottom line is: Consumers with overdrafts and tolerated overdrafts are currently largely unprotected in legal terms."
To close these regulatory gaps, the study identifies several possible mechanisms to protect consumers. These include including all agreed overdrafts and tolerated overdrafts in the scope of the new consumer credit directive, a cap on interest rates and fees, an obligation to conduct creditworthiness checks, and improved information requirements, including sanctions in the event of their violation.