The General Directorate of Consumer Affairs of the Government of Andalusia highlights the entry into force, since December 31st, of the Guidelines on Governance and Transparency for ‘Revolving’ Credits for supervised entities, implemented by the Bank of Spain. The objective of these guidelines is to establish a set of supervisory directives to assist financial institutions in complying with the rules on governance and transparency of revolving credit and promote best practices regarding this type of products.
‘Revolving’ or revolving credit has been subject to a differentiated regulatory treatment since 2020, which introduced new information obligations and other measures related to assessing the repayment capacity of its users. This product has rapidly expanded in recent years, promoting quick financing with a flexible payment method, allowing for the deferred repayment of credit with periodic installments, and with a repayment amount chosen by the user.
One aspect addressed in the guidelines is advertising, where the Bank of Spain states that the term ‘free’ should not be used in reference to the card, and that, in any case, it should be clarified that the gratuity only applies to the issuance and/or maintenance of the payment instrument, not to the availability of credit, which will be rewarded according to the stipulated conditions for ‘revolving’ credit.
Providing accurate and detailed information to customers is a key focus of these guidelines. Institutions must assist customers individually so that consumers can evaluate if the proposed credit contract aligns with their interests, needs, and financial situation. The information must be clear, emphasizing the content of pre-contractual information, essential product characteristics, and specific effects that may impact the customer, including consequences in case of default.
According to the guidelines, the pre-contractual information and the contracting moment must be clearly differentiated. Additionally, when transitioning from the information screen to the contracting screen, no pre-selected boxes should exist.
As with all credits, users have the right to withdraw within 14 days. In the case of ‘revolving’ credits associated with a payment instrument, such as cards, where institutions consider the contract formalized after the first use or activation of the card, the withdrawal period must begin at the moment of activation or use of the payment instrument, which should also be reflected in all pre-contractual information and the contract.
The guidelines also address ancillary insurances for ‘revolving’ credit, requiring institutions offering a combined insurance with this product to clearly inform customers that this insurance is not mandatory and explain its characteristics, cost, and potential impact if not contracted alongside the credit. Therefore, insurance contracting must be separate from credit contracting. The insurance premium is not part of the periodic installment of ‘revolving’ credit, and non-payment of the insurance premium cannot be considered a debt derived from the credit.
The Bank of Spain suggests that banks may send communications to their customers regarding ‘revolving’ cards, informing them of possible contractual modifications to align with these new guidelines, always aiming to enhance transparency in contracts for consumers.
Consumer Affairs emphasizes the importance of financial education to ensure individuals have the necessary information and knowledge to make appropriate and responsible financial decisions.
With revolving credit, the credit debt is renewed periodically. While the debt decreases with periodic payments, it increases through card usage (payments or withdrawals at ATMs), as well as with interest rates, which are usually quite high, fees, and other generated expenses, all financed together. Thus, one of the main risks associated with using these products is that, if making low payments compared to the debt amount, repayment occurs over a very long period, resulting in high interest payments and ultimately the perpetuation of debt.