CCD2: What EU lenders need to know and how to prepare

The Consumer Credit Directive 2 (CCD2) is a significant update to EU legislation aimed at enhancing consumer protection in the credit market by expanding its scope to include newer credit products such as Buy Now, Pay Later (BNPL) and micro-lending tools. CCD2 mandates comprehensive creditworthiness assessments for all loans, regardless of size, to ensure sustainable lending based on verified financial data, thus promoting responsible borrowing. Open banking is emphasized as a preferred method for these assessments due to its ability to provide real-time financial insights, thereby improving accuracy and compliance. The directive is driven by a need to protect consumers from unaffordable debt, ensure fairness in lending, and increase consumer confidence. It must be transposed into national legislation by November 2025, with full compliance required by November 2026, although interpretations may vary across EU member states. While CCD2 does not apply to the UK post-Brexit, similar reforms are being considered under the UK's Consumer Credit Act, indicating a parallel trajectory in consumer credit regulation.