Changing the oil in the debt management machinery
As part of a comprehensive EU strategy to tackle non-performing loans, the European Parliament and the Council adopted a directive on credit servicers and credit purchasers, which Member States have until 29 December 2023 to transpose into national law.
The aim of the Directive is threefold: to strengthen the single financial market and the secondary market for non-performing loans by harmonising national rules, in particular to facilitate the transfer of information and data; to strengthen the internal market in the field of cross-border debt purchase and management; and to establish a single framework for the rights of borrowers.
The most important of these objectives seems to be to facilitate the development of the secondary market for non-performing loans in the EU by removing obstacles to the transfer of non-performing loans from credit institutions to credit purchasers and by determining the security for the transfer, while protecting the rights of borrowers. To ensure the safety of debtors, the Directive makes credit management an activity subject to authorisation. Furthermore, there are a number of principles and rules that credit servicers must follow when carrying out their activities, such as the transfer of claims, communication and complaints handling.
The Directive covers non-performing loans granted by all EU-based credit institutions or financial firms, i.e. its provisions apply to the purchase of such claims. It follows that other claims not arising from credit and loan agreements, such as utility and other service provider claims, are excluded from the scope of the Directive. Nor does the Directive cover more complex transactions that are not solely for the transfer of non-performing loans but, for example, of entire client portfolios or business lines. The common view in the market is that an extension of the Directive or its eventual implementation covering entire client portfolios and non-loan claims may be wise.
There is a dilemma between breaking down the barriers, which is needed to strengthen the internal market, and the basic nature of the financial market, which points towards detailed regulation. The Directive seeks to resolve this by adding a highly regulated role to unconstrained purchasing activity: the credit servicer. The Directive is an acknowledgement of the fact that investors are currently unable to take advantage of the internal market because of the barriers arising from divergent national regulations, and the focus is on a uniform relaxation of regulation in this area. However, there are no common EU rules on the regulation of credit servicers and debt recovery, so it provides a regulatory framework in this area which needs to be fleshed out by the Member States. In Hungary, there is no uniform law on debt management, so most of the relevant rules have so far been manifested in the recommendations of the Hungarian National Bank. The question is whether the Directive will be implemented as a new, separate law or by amending an existing law (e.g. the Credit Institutions Act).
Overall, the implementation of the Directive is expected to increase the role of debt management or credit servicers, and is expected to increase the banking sector's focus on these service providers while adapting their work-out strategy accordingly. At the same time, a reduction in the number of judicial enforcement cases and the out-of-court settlement of these would also be welcome.