NPL sales now regulated across EU

European Parliament negotiators agreed with the European Council on common EU standards regulating the secondary market for non-performing loans, the Parliament said in a statement on Monday.

The purpose of the proposed directive is to facilitate sales of NPLs among banks and asset managers while protecting the borrowers.

“The agreed measures foster the development of professional secondary markets for credit agreements originally issued by banks and qualified as non-performing. Third parties (credit purchasers) would be able to buy such NPLs across the EU. Credit purchasers (for example investment funds) are not creating new credit, but buying existing NPLs at their own risk,” the statement said.

Credit servicers ( who manage NPL sales), under the new law, would have to obtain authorisation and be subject to supervision by the Member States’ competent authorities. In order to protect consumers, all credit purchasers will have an obligation to have a credit servicer appointed by a host country for consumer portfolios. In addition, third country credit purchasers will also have to appoint a credit servicer for SMEs portfolios to protect entrepreneurs.

The European Commission began proposals for such rules in December of last year.

But in March 2021, the European Economic and Social Committee (EESC)  issued a statement expressing concern for the treatment of borrowers under the proposals; the EESC said that the directive proposed by the Commission was “not fit for Covid-19 times.”

Negotiators from the Council and Parliament have now agreed on harmonised binding provisions for all Member States.

The agreement tries to ensure that borrowers should not be worse off following the transfer of their credit agreement. To this end, fees and penalties charged by servicers including transfer costs cannot change nor any additional costs be imposed other than related to this credit agreement. Furthermore, the contract and obligations between a credit servicer towards a credit purchaser should not be altered by outsourcing of credit servicing, according to the statement.

“With this Directive we make clear that the development of a real, efficient and well-regulated European secondary market for NPLs must go hand in hand with all possible efforts by creditors to make credit performing again, and the highest possible level of protection for borrowers. This is even more important now when we are still bearing the consequences of the COVID-19 pandemic; we cannot risk the recovery being jeopardised by decisions that penalise households and firms,” commented Italian MEP Irene Tingali who was co-rapporteur for the bill.