The European Union (Credit Servicers and Credit Purchasers) Regulations 2023[1] (the “Regulations”) transposed into Irish law the EU Credit Servicing Directive 2021/2167[2] (the “Directive”) with an effective date of 30 December 2023.
The fundamental goal of the Directive is to provide a common framework for the sales and servicing of non-performing loans (“NPLs”) issued by credit institutions established in the EU.
NPLs are defined in the Directive as a credit agreement which has been classified as non-performing in accordance with Article 47a of the EU Capital Requirements Regulation.
The Central Bank of Ireland (the “Central Bank”) has been designated as the competent authority under the Regulations.
Points to be aware of following the transposition of the Directive include:
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- Ireland already has an existing Irish credit servicing regulatory framework (as introduced by the Irish Consumer Protection (Regulation of Credit Servicing Firms) Act 2015 (as amended)) pursuant to Part V of the Irish Central Bank Act 1997 (the “Existing Irish Regime”). The Existing Irish Regime will now operate alongside the Regulations (the “EU Regime”), effectively creating two parallel regimes.
- The EU Regime applies to the sales and servicing of NPLs originated by EU credit institutions on or after 30 December 2023. For credit agreements which fall outside the scope of the Regulations, the Existing Irish Regime will continue to apply.
- The Regulations impose a number of obligations on credit institutions, credit purchasers, and credit servicers.
- A credit servicer (and credit purchaser) must have a credit servicing agreement, which is to include, at a minimum, certain prescribed provisions (e.g. detailed description of the credit servicing activities, the level of remuneration of the credit servicer and a specific clause for the fair and diligent treatment of borrowers).
- A credit servicer which is to receive and hold payments from borrowers must ensure those funds are credited to and held in a segregated account, until their channelling to the respective credit purchaser.
- Credit purchasers and credit servicers, in their relationship with borrowers, are to act in good faith, fairly and professionally, and to provide information to borrowers that is not misleading, unclear, or false.
- Credit institutions shall provide prospective credit purchasers with necessary information in respect of NPLs to enable the credit purchaser to conduct its own assessment of its applicable value.
- Credit institutions will have to report to the Central Bank on a biannual basis in relation to the legal entity identifier of the credit purchaser along with the aggregate outstanding balance of the creditor’s rights under the non-performing credit agreements or of the non-performing credit agreements transferred.
- An authorised credit servicer has the ability under the EU Regime to passport its authorisation to other member states.
- An entity that is authorised as a credit servicing firm under the Existing Irish Regime is automatically deemed to be authorised as a credit servicer for the purposes of the Regulations.
- The Regulations will not apply to credit servicing by an EU credit institution, an Irish retail credit firm, or certain investment fund vehicles.
Impact of the Regulations
Going forward it is crucial that all parties involved in NPL sales and servicing are aware of the provisions of the Regulations and have carefully considered both the Existing Irish Regime and the EU Regime so they can establish the regime that applies to them and ensure they have fully adhered to the requirements of same.
How can we help?
If you have any queries or concerns or would like to discuss the above in further detail, please feel free to contact Gregory Gannon, Banking & Finance (ggannon@bhsm.ie) for further information.
This article is for general information purposes. Legal advice must be obtained for individual circumstances. Whilst every effort has been made to ensure the accuracy of this article, no liability is accepted by the author for any inaccuracies.
Footnotes
[1] S.I. No. 644/2023 – European Union (Credit Servicers and Credit Purchasers) Regulations 2023.
[2] Directive (EU) 2021/2167 of the European Parliament and of the Council of 24 November 2021 on credit servicers and credit purchasers and amending Directives 2008/48/EC and 2014/17/EU.