This article assesses if and how the recently adopted EU Directive concerning consumer mortgage credit agreements (Directive 2014/17/EU) contributes to defining a common Bresponsible lending^policy in the varied contexts of the Member States' mortgage markets. It addresses that question by analysing how the Directive's rules will complement or change the regulatory regimes of the UK and the Netherlands. Drawing on data from economics studies regarding household debt, affordability of credit, and the institutional framework of mortgage market regulation, the article seeks to explain how different regulatory choices in these legal systems are informed by the sources of risk that regulators seek to control. Even with the harmonized rules laid down in the Mortgage Credit Directive, the modalities of Bresponsible lending^will still differ significantly between EU Member States. Nevertheless, the study of Member States' policies may reveal common concerns and directions on how to address them.

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Examples of financial mistakes made by consumers lend support to the view that systematic mistakes of consumers exist in the EU credit market and that service providers respond strategically to these by redesigning their products. This paper seeks to determine how existing regulation can be improved to ensure consumer protection. Using insights from behavioural economics, this paper argues that financial literacy-that is, knowledge and understanding of complex financial products and skills to navigate the financial market-as a cornerstone for European financial consumer law is problematic. Current regulation is based primarily on information provision to consumers, which should enable them to make appropriate decisions about the risks and suitability of financial products. Although behavioural economics does not necessarily require legal intervention to take other forms than the introduction of information duties, the type of intervention is dependent on the design and needs of a particular market. The EU consumer credit market, in our view, demands more than the current regulation offers in terms of consumer protection. In particular, behavioural studies reveal that consumers generally do not have a sufficient level of financial literacy in order to enable them to make informed, rational decisions. Moreover, behavioural biases have a distorting influence on consumer decision making. The law as it stands, therefore, seems ill-equipped to offer protection to consumers and to prevent them from rash and bad decision making. Reviewing existing regulation and case law, we propose that in the EU law, the Consumer Credit Directive and the Markets in Financial Instruments Directive require updating in order to offer sufficient protection to vulnerable groups of consumers who, on average, have low levels of financial literacy.

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