On 24 November 2021, the EU legislator adopted the Directive (EU) 2021/2167 of 24 November 2021 on credit servicers and credit purchasers (the “NPL Directive”), amending Directives 2008/48/EC (the “Consumer Credit Directive”) and 2014/17/EU (the “Mortgage Credit Directive”).
The NPL Directive has been transposed in Belgium by the law of 20 December 2024 transposing the NPL Directive (the “NPL Law”). Belgium did not engage in any gold plating in the transposition. The NPL Law entered into force on 24 January 2025, almost a year after the scheduled European transposition date.
1. GOALS OF THE NPL LAW
The NPL Law has two main objectives:
- Preventing the build-up of non-performing loans (“NPLs”) in the EU and enhancing the development of secondary markets for such NPLs; and
- Protecting borrowers, especially consumers, whenever such NPLs are transferred to third parties.
The underlying rationale is that if a bank’s NPL portfolio becomes too large, it should be able to sell these loans on efficient, competitive, and transparent secondary markets. This should allow those institutions to offload NPLs to specialised credit servicers or purchasers with the expertise to manage them, as banks sometimes lack the necessary resources for large-scale NPL management.
2. SCOPE OF APPLICATION
The NPL Law establishes a regulatory framework for the sale, purchase and servicing of NPLs originated by banks established in the EU. A NPL is defined as a credit agreement that is subject to late repayment (90 days past due) or unlikely to be repaid by the borrower, in accordance with the Capital Requirements Regulation 575/2013 (“CRR”). In turn, the definition of a credit agreement covers both syndicated and bilateral credit agreements by which an EU bank grants credit in the form of a deferred payment, a loan or other similar financial accommodation to a commercial or consumer borrower.
The NPL Law thereby introduces two new types of entities into Belgian law:
- A credit servicer is a newly regulated legal entity, authorised by the Belgian Financial Services and Markets Authority (“FSMA”), that manages and enforces creditor rights under an NPL, acting on behalf of a credit purchaser. To qualify, it must engage in at least one credit servicing activity, such as collecting and recovering payments, renegotiating credit terms with borrowers, handling complaints, or informing borrowers of changes to interest rates or any payments relating to a creditor’s rights.
- A credit purchaser is any entity (except a bank) that purchases creditor rights under an NPL or directly the NPL itself.
Certain entities and transactions fall outside the scope of the NPL Law:
- The law does not apply to credit servicing activities performed by (i) EU banks, (ii) alternative investment fund managers (AIFMs), (iii) UCITS management companies, (iv) mortgage and consumer credit lenders, or (v) legal professionals acting within their official duties.
- Additionally, NPLs (i) not issued by an EU bank, (ii) purchased by EU banks, and (iii) transfers of a creditor’s rights under or the non-performing credit agreement itself made before the law’s effective date, are also excluded.
Although the NPL Law applies only to NPLs issued by an EU bank, a bank’s credit servicing or credit purchasing activities fall outside its scope. The reason being that banks are already regulated and supervised, and application of these obligations to banks would mean unnecessary duplication of authorisation and compliance cost. Banks do, however, have new disclosure and reporting requirements for selling NPLs (see below).
3. OBLIGATIONS OF ENTITIES UNDER THE NPL LAW
A. Obligations of the newly regulated “credit servicers”:
- Authorisation requirement: before commencing their activities, Belgian credit servicers must obtain authorisation from the FSMA. Requirements to obtain authorisation include managerial and administrative repute, knowledge and experience, as well as having a robust governance, internal control and accounting procedures. Once authorisation has been obtained, it will be possible to passports such services to other EU Member States.
- Operational restrictions: credit servicers are not permitted to receive or hold borrower funds. While servicers may outsource certain credit management activities, they remain fully responsible for compliance with the law. Outsourcing agreements must meet strict conditions, and full delegation of all servicing activities is prohibited. Since credit servicers cannot receive or hold borrower funds, they are also not subject to the Belgian AML law of 18 September 2017.
- Rules of conduct: vis-à-vis the borrowers, the credit servicer must (i) act in good faith, honestly and professionally, (ii) provide information which is not misleading, unclear or incorrect, (iii) respect and protect their personal information and privacy and (iv) communicate in a manner that does not constitute intimidation, coercion or undue influence.
B. Obligations of the newly regulated “credit purchasers”:
- Appoint a credit servicer to service the NPL: this obligation applies if the borrower is a consumer. The appointed credit servicer must be either an EU bank, a lender, or a credit servicer authorised in an EU Member State. For non-EU credit purchasers, a credit servicer must be appointed where the borrower is a natural person (including a consumer and self-employed person) or a micro, small or medium-sized enterprise.
- Notification to FSMA: credit purchasers must inform the FSMA of the identity and address of the appointed credit servicer before servicing activities commence.
- EU-based representative: Non-EU credit purchaser must designate an EU-based representative, responsible for ensuring compliance with Belgian law, when acquiring NPLs in Belgium.
- Rules of conduct: vis-à-vis the borrowers, the credit servicer must (i) act in good faith, honestly and professionally, (ii) provide information which is not misleading, unclear or incorrect, (iii) respect and protect their personal information and privacy and (iv) communicate in a manner that does not constitute intimidation, coercion or undue influence.
C. Obligations for the banks selling NPLs
- Pre-sale disclosure: before selling an NPL, Belgian banks must provide potential buyers with comprehensive information on the creditor’s rights under the NPL, including any associated collateral. This ensures that credit purchasers can independently assess the value and recovery prospects of the NPL.
- Post-sale reporting requirements: banks selling NPLs must report transaction details semi-annually to the relevant authorities, including information on the credit purchaser, outstanding loan amounts, and whether consumer credit agreements are involved. If the borrower is domiciled in Belgium, the FSMA may request additional quarterly reporting.
If you have any questions or would like to discuss the potential impact of the NPL Law on your activity, feel free to reach out to us at digitalfinance@simontbraun.eu.
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This newsletter does not constitute legal advice or a legal opinion. Please consult with a legal counsel before taking any action based on the information provided.
