Lawmakers on Monday quibbled on whether Cyprus looks set to face fines from Brussels for failure to transpose into domestic law an EU directive regulating the transfer of loans from banks to credit-acquiring companies.

The directive in question is EU directive 2021/2167 on credit servicers and credit purchasers. Member states should have transposed the directive into their national law by December 29, 2023. Having failed to do so by that cutoff date, Nicosia in January of this year received a letter of warning from the European Commission.

But Christiana Erotokritou, chair of the House finance committee, was confident that Cyprus would not face infringement proceedings despite the delay.

“We won’t miss any date, and so we won’t risk any fines,” she said.

Erotokritou was speaking to media following a meeting of the committee that continued discussion of a batch of bills intended to harmonise with the EU directive.

However Akel’s Andreas Kafkalias was less sanguine, warning that Cyprus “is only a step before facing infringement proceedings”.

Regarding the substance of the issue, the MP said that the bills being debated in parliament would create a two-track system concerning loan transfers. This was because the proposed amendments, harmonising with the EU directive, would apply only to loan transfers taking place after the bills are enacted into law.

“Any trading in old non-performing loans, or restructuring of old non-performing loans that are outside the banking system will continue to be governed by the old system, which doesn’t ensure internal safeguards, accountability or fair treatment of borrowers,” Kafkalias argued.

The EU directive regulates the sale, purchase and servicing of non-performing loans (NPLs) originated by EU banks. It aims to reduce the build-up of NPLs within EU banks, and does so by creating a framework to help foster a secondary market in NPLs, while ensuring this will not adversely affect borrowers.

As regards credit purchasers – non-bank purchasers of NPLs – before sale they must disclose information about the creditor’s rights under the NPL and any supporting collateral, to enable the purchaser to assess the likelihood of recovery. They must also appoint a credit servicer – a legal entity that manages and enforces rights and obligations under an NPL on behalf of a credit purchaser and carries out “credit servicing activities”, such as collecting payments.

Credit servicers must be authorised as such by an EU national supervisory authority, unless they are an EU bank or certain other type of entity authorised or supervised in the EU. Only EU-incorporated entities are eligible for authorisation.

During a previous discussion, MPs heard that at the moment the banking system in Cyprus holds €2 billion in NPLs, while €22 billion is held by credit-acquiring companies or CACs.