Negotiators from the European Parliament and the Council of the European Union reached a political agreement on Friday 4 June on the proposed Directive to stimulate secondary markets for non-performing loans (NPLs).
Presented in March 2018 (see EUROPE 11981/13), the proposed Directive will make it easier for credit purchasers, such as investment funds, to acquire bank loans that are more than 90 days overdue from EU banks.
By shedding NPLs, banks should be able to lend more to the real economy, while the stock of non-performing loans is expected to rise again as governments remove their emergency fiscal measures put in place to deal with the Covid-19 pandemic.
Credit servicers may act on behalf of financial firms that have acquired a problematic loan by managing the rights and obligations of the latter, such as collecting repayments and/or renegotiating the terms of the agreement. They will need to obtain authorisation to operate throughout the EU and will be supervised by the State in which they are established. A national register of these servicers will be publicly available online and regularly updated.
Divergence in Parliament on the level of consumer protection
The agreement reached ensured that borrowers are not worse off following the transfer of their NPLs to a purchaser, according to a parliamentary statement. And Member States will still be able to introduce stricter rules in order to protect consumers (‘forbearance rules’).
“This Directive will create a European secondary market for problematic loans and simultaneously make sure that the people who have taken out these loans are treated fairly”, welcomed Esther de Lange (EPP, Netherlands), Parliament co-rapporteur. Similarly, the other co-rapporteur, Irene Tinagli (S&D, Italy), said that the creation of a European passport for credit servicers should go hand in hand with the search for the “best possible level of consumer protection”.
Provisions have been introduced to ensure that borrowers are adequately informed. Before the first collection of a repayment by a credit servicer, a borrower will receive an official notification about the transfer of his or her loan to a credit purchaser (date of transfer, outstanding amount, contact data, approval of the credit servicer, modalities of a possible appeal procedure).
According to Parliament, a credit servicer will not be able to impose fees and/or penalties or additional costs that are more burdensome than what a bank imposed when it originally managed the NPL. Parliament and EU Council negotiators also ask that the individual situation of the borrower be taken into account when certain measures are taken by the servicer, such as refinancing the loan.
The Greens/EFA Group is in favour of stronger measures and believes that the two co-rapporteurs have given in on the issue of consumer protection having faced resistance from the EU Council, whose initial negotiating position did not foresee such measures (see EUROPE 12223/20), and “complicity” from the Commission.
Green MEPs believe that the provisions introduced merely mirror those already included in the Mortgage Credit Directive and only refer to a vague and non-binding code of conduct. The minimum list of measures to ease the burden of an NPL on the borrower, which MEPs had drawn up (see EUROPE 12633/18), and the development of technical standards by the European Banking Authority (EBA) were removed from the final agreement.
Regarding consumer information, the Greens/EFA Group criticises the fact that the future rules will not effectively combat certain abusive practices related to fundraising by credit servicers. The Group points out that the mandatory notification is only for the first collection of reimbursement and here again the EBA will not have to develop technical standards.
The future EU rules could be put to a vote by MEPs at the Parliament plenary session after the summer.
Finally, legislative work will continue on the other part of the Directive, separate from this legislative text, which introduces an accelerated extrajudicial collateral enforcement procedure. This mechanism will be strictly limited to loans granted to companies. (Original version in French by Mathieu Bion)