Consultation on the Credit Servicing Directive – Three Initial Observations
The Department of Finance has announced a consultation process on the Credit Servicing Directive. The key objective of the Directive is to promote a secondary market for NPLs. DLA Piper is closely monitoring the transposition of the Directive in Ireland and across the EU to assess the likely impacts on our clients who engage in credit purchasing and/or servicing on a pan-European basis.
The consultation process will run until 8 March 2023 and submissions received will be taken into consideration when deciding whether and how Ireland exercises any of the discretions afforded to Member States in the transposition of the Directive. The transposition deadline is 29 December 2023.
Here are three initial observations that will be of interest to credit purchasers and credit servicers.
Ireland has an existing regulatory framework for credit servicing firms which differs in several respects with the regime set out in the Directive. For example, there are differences in the credit that is ‘in-scope’, the categories of credit servicing activities and the classifications of borrowers and sellers.
Although we still await draft implementing legislation, it seems the Department is contemplating a dual-regime whereby (1) the Directive will apply to EU bank originated NPLs1 transferred or sold after 29 December 2023 and (2) the existing Irish regulatory framework will apply to EU bank originated NPLs transferred or sold before 29 December 2023 and, both pre and post transposition, it will apply to NPLs originated by non-bank lenders and to performing/re-performing loans.
2. Scope – limited to NPLs with consumers?
Under Article 17(a), an EU based credit purchaser must appoint a credit servicer in respect of non-performing credit agreements with consumers.
Article 17(1) contains a discretion which allows host Member States to also require EU based credit purchasers to appoint a credit servicer in relation to credit agreements other than non-performing credit agreements with consumers (for example, performing consumer loans or non-performing SME loans).
This is one of the key discretions for which the Department is seeking feedback under the Consultation Paper.
3. Mixed portfolios
It is still unclear how sales of mixed portfolios (NPLs coupled with performing/re-performing loans) originated by EU banks will be dealt with under the Directive. This will hopefully become clearer over the coming months.
If you have queries or observations regarding the consultation or the implementation of the Directive in Ireland or across the EU, please reach out to our team with any queries.
1 See 2 below on the scope of the Directive.