The Bill of Law N°8185 regarding the transfer of non-performing loans (“NPL”) which is purported, inter alia, at (i) transposing into the national law of the Directive EU 2021 (EU) 2021/2167 on credit servicers and credit purchasers and amending Directives 2008/48/EC and 2014/17/EU and (ii) creating a new category of professionals of the financial sector, namely the credit servicers (the “Bill of Law”) should soon be adopted. The purpose of this Bill of Law is to create the appropriate legal environment for the credit institution to deal with NPLs on their balance sheets and to reduce the risk of future NPL accumulation.

What are NPLs and who are credit servicers and credit purchasers?

The NPLs are the loans which are classified as non-performing exposures i.e. where the borrowers are unable to make the scheduled payments to cover interest or capital reimbursements and when the payments are more than 90 days past due, or the loans are assessed as unlikely to be repaid by the respective borrowers.

Credit servicers are financial sector professionals who are (a) subject to the same regulatory framework as other entities governed by the Law of 5 April 1993 on the financial sector, with prerequisites such as prior CSSF authorization and compliance with capital, shareholding, governance requirements, EU passporting, and oversight by the CSSF, and (b) engage in one or more of the following activities on behalf of a credit purchaser:

• collecting or recovery from the borrower of any payments due related to a creditor’s rights under a NPL or a NPL itself;
• renegotiating with the borrower of any terms and/or condition related to a creditor’s rights under a NPL or a NPL itself;
• administrating any claims/complains relating to a creditor’s rights under a NPL or a NPL itself; or
• informing the borrower of any changes in interest rates or charges, or of any payments due related to a creditor’s rights under a NPL or a NPL itself.

A credit purchaser means any legal or natural person, other than a credit institution, that purchases a creditor’s rights under a NPL or the NPL itself, in the course of its trade, business or profession.

What falls under the scope of the Bill of Law?

The Bill of Law addresses the relationship between:

• the credit servicers, acting on behalf of a credit purchaser related to creditor’s rights under a NPL or a NPL itself;
• the credit purchaser related to creditor’s rights under a NPL or a NPL itself, which has been entered into by a credit institution of a Member State;
• the credit service providers to whom the credit servicers have outsourced the credit services: and
• the transfer of creditor’s rights under a NPL or the assignment of the NPL itself between a creditor (i.e. a credit institution) to a credit purchaser.

What falls outside the scope of the Bill of Law?

The following are not covered by this Bill of Law:

• the performing loans;
• the servicing of creditor’s rights under a NPL or a NPL itself, carried out by a credit institution, an alternative investment fund manager, a non-credit institution subject to supervision by a competent authority;
• the servicing of creditor’s rights under a NPL or a NPL itself, that was not issued by a credit institution, except where said creditor’s right under a NPL or a NPL itself is replaced by a credit agreement issued by such credit institution;
• the purchase of creditor’s rights under a NPL or a NPL itself by a credit institution.

New obligations of the credit institutions

Pre-sale disclosure: The credit institution shall provide the credit purchaser, only once with necessary information regarding creditor’s rights under a NPL or a NPL itself, and if applicable, the collateral, so as to enable it to conduct its assessment of the value and the likelihood of recovery of the value whether is contracting a transfer of creditor’s rights under a NPL or an assignment of a NPL itself. Upon receipt of the above, the credit purchaser is bound to ensure the confidentiality of information and of business data.

Post-sale reporting: The credit institution is required to quarterly submit a report to their home state authorities in the relevant “host” Member State, containing at least the following details:

• the legal entity identifier of the credit purchaser or its appointed representative;
• the aggregate outstanding balance of creditor’s rights under a NPL;
• the number and size of creditor’s rights under a NPL sold to a purchaser;
• whether the transfer included NPLs involving consumers, along with specifications regarding collateral types if applicable.

New obligations of the credit purchasers

Confidentiality: Upon receipt of the necessary information regarding creditor’s rights under a NPL or a NPL itself, and if applicable, the collateral from a credit institution, the credit purchaser is bound to ensure the confidentiality of information and of business data.

Consumers: Unless the credit purchaser possessed itself the necessary authorization, it shall appoint, in order to carry out activities of creditor’s rights under a NPL or a NPL itself, where NPL(s) are concluded with consumers, either (i) a credit institution established in the EU, or (ii) a non-credit institution subject to supervision by a competent authority of a Member State or (iii) a credit servicer.

Representative: If a credit purchaser is not domiciled in a Member State or lacks a registered office or headquarters within a Member State, it must appoint a representative in writing who resides in a Member State or has a registered office or, if it lacks a registered office, its headquarters within a Member State. This is necessary for the transfer of creditor’s rights under an NPL or the assignment of the NPL itself from a creditor residing in Luxembourg or having a registered office or, if lacking a registere’ office, its headquarters in Luxembourg.    A Luxembourg credit purchaser or a representative who has been designated (as per above) or the credit servicer shall communicate its identity and the address to CSSF no later than the date on which credit service activities begin.

Mandatory agreement provisions: The credit purchaser shall include in the agreement with a credit servicer, at least the following:

• a detailed description of the credit servicing activities to be carried out by the latter,
• its remuneration and the payment method;
• its representation powers towards the borrower;
• an undertaking of both parties to comply with the EU and national law with respect to creditor’s rights under a NPL or the NPL itself, including in respect of consumer and data protection;
• a clause requiring fair and diligent treatment of the borrower; and
• a requirement pursuant to which the credit servicer notifies the credit purchaser prior to outsourcing any of its credit servicing activities.

Relationship with the borrowers: The credit purchaser and the credit servicer are required in their relationship with borrowers, to:

• act in good faith, fairly and professionally;
• provide appropriate information that is not misleading, unclear or false;
• respect and protect the personal information and privacy of the borrowers;
• communicate with borrowers in a way that does not constitute harassment, coercion or undue influence.

Whenever requested by the borrower and always in advance of the first debt collection, the credit purchaser (or the credit servicer (if any)) should provide the borrower with at least the following:

• information on the date of transfer of the creditor’s rights under a NPL or the assignment NPL itself;
• who is the credit purchaser including contact details or the credit servicer acting on behalf of a credit purchaser, including its authorization to act as such;
• information on the amounts due by the borrower at the time of the communication, detailing what is due as capital, interests, fees and other permitted charges; and
• contact details of the competent authority to which the borrower can submit a complaint.

The enactment of this Bill of Law has been eagerly anticipated and is essential for the banking sector to tackle the significant volumes of NPLs and to prevent their excessive accumulation in the future.

For more information or assistance on this topic, you may reach out to Delia Nitescu.