The deadline for the transposition of the Directive 2021/2167 of the European Parliament and of the Council on credit servicers and credit purchasers[1] („NPL Directive”) is approaching, Member States must comply with this obligation by 29 December 2023.
Currently, there are no common EU rules on the activities of credit servicers and credit purchasers, meaning that Member States are using very different rules on how they can purchase credit agreements. The lack of a common regulatory framework makes cross-border credit purchases even more difficult and has a negative effect on the market of non-performing loans („NPLs” or „NPL”).
The new regulatory framework will bring significant changes to the market of NPLs in the EU. The proposed measure will ensure the protection of borrowers and help to prevent an increase in the volume of NPLs – as experienced after the last financial crisis[2] – while allowing credit institutions to remove NPLs from their balance sheets. In the following, we highlight the main points of the NPL Directive and the key obligations it imposes:
- Non-performing loan
The new regulatory framework relates to transactions and services directly linked to NPLs. According to the NPL Directive, a NPL means a credit agreement classified as a non-performing exposure for which it can be determined that default has occurred, or which is considered to be impaired under the applicable accounting rules.[3]
- Scope of the NPL Directive
The NPL Directive applies to credit purchasers of a creditor’s rights under a NPL issued by a credit institution established in the EU or of the NPL itself, and to credit servicers acting on their behalf. It does not apply to, inter alia, non-credit institutions, alternative investment fund managers (AIFM) or investment companies.
- Credit purchasers and credit servicers
According to the NPL Directive, a credit purchaser is a natural or legal person, which is not a credit institution, and in the course of its trade, business or profession purchases a creditor’s rights under a NPL, or the NPL itself. A credit servicer, on the other hand, can only be a legal person that, in the course of its business manages and enforces creditor’s rights under a NPL, and carries out credit servicing activities, which allow NPLs to become performing.
- Authorisation and supervision
The NPL Directive states that the activity of credit servicing is subject to authorisation and defines the requirements for the granting of such authorisation. In this area, it is for the Member States to establish their authorisation procedures and to set up a national register of all credit servicers authorised to provide services within their territory. For entities already carrying out credit servicing activities on 30 December 2023, they may continue to do so until 29 June 2024 or until they obtain authorisation under this NPL Directive.
The activities of credit servicers are subject to supervision by the competent authority of the home Member State, which has the power to investigate, sanction or remedy, such as inspection, prohibition, withdrawal of authorisation, imposition of administrative fines, order to remedy an infringement.
- Right to information
Member States are required to ensure that a credit institution provides to the prospective credit purchaser, within reasonable limits, all necessary information concerning the creditor's rights under the NPL or the NPL itself and the collateral, in order to enable the purchaser to carry out financial due diligence and evaluation, while ensuring the protection of the creditor's information and the confidentiality of business data.
- Establishing an EU-wide electronic data center
For the above purpose, the European Banking Authority (EBA) has published a final draft implementing technical standard[4] („ITS”) setting out the information requirements to be provided to prospective purchasers, in which it has established five disclosure templates for the completion of the specified data fields. The goal of the ITS is to create an EU-wide electronic data center in order to increase market transparency, enabling the exchange of information between all stakeholders.[5]
It’s important to note that the data templates should be used for credit agreements issued on or after 1 July 2018 that become non-performing after 28 December 2021. EU credit institutions will need to implement new systems to manage data templates and disclosures. In case of inaccurate or incomplete information disclosures, credit institutions may face fines and claims for damages, and if they fail to comply with the new regulations, will not be able to sell their NPLs.
Consequently, the publication of the amendment of Act CCXXXVII of 2013 on Credit Institutions and Financial Enterprises is expected in Hungary in the upcoming months, as indicated in the Government's legislative work plan[6].
[1] Directive (EU) 2021/2167 of the European Parliament and of the Council of 24 November 2021 on credit servicers and credit purchasers and amending Directives 2008/48/EC and 2014/17/EU, EUR-Lex - 32021L2167 - EN - EUR-Lex (europa.eu)
[2] Mairead McGuinness, Commissioner responsible for financial services, financial stability and the Capital Markets Union, Tackling non-performing loans (NPLs) (europa.eu)
[3] Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (CRR Regulation), Article 47a. and 178.
[4] EBA, Final report, Draft Implementing Technical Standards, 16 December 2022, Final report on draft ITS on NPL transaction data templates.pdf (europa.eu)
[5] European Commission, Press release, Coronavirus response: Tackling non-performing loans (NPLs) to enable banks to support EU households and businesses, 16 December 2020.
[6] A Kormány 2023. II. félévi jogalkotási munkaterve, Miniszterelnöki Kormányiroda, Jogszabálytervezetek, 31 July 2023., https://kormany.hu/dokumentumtar/a-kormany-2023-ii-felevi-jogalkotasi-munkaterve
