Secondary market for non-performing loans (NPLs): a directive in the near future?

The draft Directive on the secondary market for non-performing loans (NPLs) aims to develop a secondary market for credit agreements initially issued by banks and qualified as non-performing.

In concrete terms, third parties (credit buyers) will be able to buy these NPLs throughout the European Union. Credit buyers (e.g. investment funds) will not create new credits, but will buy existing NPLs at their own risk. Therefore, they will not need a special authorisation but will have to comply with the applicable legal requirements.

Credit servicers are legal persons who act on behalf of credit buyers and manage the rights and obligations arising from a non-performing credit agreement, such as collecting payments or renegotiating the terms of the agreement. They will have to be authorised and supervised by the competent authorities of the Member States.

The draft directive also includes some provisions to ensure the protection of borrowers who cannot pay their debts, such as the right to information before any recovery.

Dating back to a 2018 Commission legislative proposal, the directive has undergone a long drafting process, interrupted by a change of Parliament and Commission at EU level.

Following the adoption of a position by the Member States, the three EU institutions are now working on a compromise text in so-called “trialogue” meetings. Such a text is expected in the coming months, although some political disagreements remain. After some jurist-linguists fine-tuning, the text will then be ready to be signed, published in the EU’s Official Journal and finally transposed into national law by the Member States.

By Jonathan Hug and Antoine Kremer