The European Union (EU) finalized and published, in the Official Journal of the European Union, the Directive 2021/2167 on credit servicers and credit purchasers, which some also call the Non-Performing Loans (NPLs) Directive. The Directive enters into force on the twentieth day following that of its publication in the Official Journal. Article 32 on Transposition stipulates that member states of the European Union shall adopt and publish, by December 29, 2023, the laws, regulations, and administrative provisions necessary to comply with this Directive and shall immediately communicate the text of those measures to the European Commission.
This Directive, together with other measures which the European Commission has put forward, in addition to the action taken by the European Central Bank (ECB) in the context of banking supervision under the Single Supervisory Mechanism and by the European Banking Authority (EBA), will create an appropriate environment for credit institutions to deal with NPLs on their balance sheets and will reduce the risk of future NPL accumulation. This Directive should enable credit institutions to better deal with loans that become non-performing by improving conditions for the sale of the credit to third parties. Moreover, when credit institutions face a large build-up of NPLs and lack the staff or expertise to properly service them, they should be able either to outsource the servicing of those loans to a specialized credit servicer or to transfer the credit agreement to a credit purchaser that has the necessary risk appetite and expertise to manage it. In short, this Directive lays down a common framework and requirements for:
- credit servicers of a creditor’s rights under a non-performing credit agreement, or of the non-performing credit agreement itself, issued by a credit institution established in the Union, who act on behalf of a credit purchase
- credit purchasers of a creditor’s rights under a non-performing credit agreement, or of the non-performing credit agreement itself, issued by a credit institution established in the Union
This Directive should foster the development of secondary markets for NPLs in the European Union by removing impediments to, and laying down safeguards for, the transfer of NPLs by credit institutions to credit purchasers, while safeguarding borrowers’ rights. Any measures adopted should harmonize the authorization requirements for credit servicers. This Directive should, therefore, establish a Union-wide framework for both purchasers and servicers of non-performing credit agreements issued by credit institutions, whereby credit servicers should obtain authorization from, and be subject to the supervision of, the competent authorities of member states. The introductory text to the directive also explains that the European Commission should be empowered to adopt implementing technical standards, developed by EBA, to specify the templates to be used by credit institutions for the provision of information required under this Directive. The European Commission should adopt those implementing technical standards by means of implementing acts, pursuant to Article 291 of the Treaty on the Functioning of the European Union and in accordance with Article 15 of Regulation 1093/2010.
Related Link: Directive 2021/2167
Effective Date: December 28, 2021
Keywords: Europe, EU, Banking, NPLs, Secondary Market for NPLs, Lending, Credit Risk, Reporting, Directive 2021/2167, EBA, EC
Scott is a Director in the Regulatory and Accounting Solutions team responsible for providing accounting expertise across solutions, products, and services offered by Moody’s Analytics in the US. He has over 15 years of experience leading auditing, consulting and accounting policy initiatives for financial institutions.
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