Non-Performing Loans

Last Wednesday’s EC proposal for a Directive “on credit servicers, credit purchasers and the recovery of collateral” seeks to address the NPL issue, and follows the 2017 consultation (to which the DLA Piper cross-group, cross-border NPL group responded). It aims to facilitate a secondary market for NPLs, and introduces a new form of security for business (not consumer) loans enforceable without going to court (only if agreed by the lender and borrower in advance – this would not extend to existing NPLs). “Credit purchasers” (non-bank buyers of debt originated by EU banks, e.g. debt funds) and “credit servicers” (non-bank loan servicers) would need licensing to do business by an EU27 state, if not EU entities, must  have an EU representative “fully responsible” for compliance with the obligations imposed on it pursuant to the Directive: there is no “equivalence” provision for non-EU27 funds. A credit purchaser may outsource, but only if it “retains the expertise and resources to be able to provide the outsourced activities, after the outsourcing agreement is terminated”. Any credit purchaser must, prior to sale, be given “all necessary information” for it to assess the credit being sold, and the competent authorities must be informed when one credit purchaser sells on a debt to another.  Rules regulate enforcement (including advance notification to the public authorities and the borrower) and the process for any public auction. Valuations must be obtained for both private and auction sales and if the borrower disagrees the choice of valuer, the creditor must go to court.