Potential implications of the implementation of the EU Directive (EU) 2021/2167 on credit servicers and credit purchasers under the Romanian law

The EU Directive (EU) 2021/2167 on credit servicers and credit purchasers was published in the Official Journal of the EU on 8 December 2021 (Directive) and its transposition deadline (i.e. 29 December 2023) is about to be reached. The Directive aims to establish a common legal framework among EU Member States on the purchase and servicing of both consumer and commercial non-performing loans (NPLs) originated by EU banks.

This article provides an overview of the potential impact of its implementation in Romania. To this end, we also considered the draft law on credit servicers and credit purchasers for the transposition of the Directive which was initiated jointly by the National Authority for Consumer Protection and the Ministry of Economy and published for public consultation on 12 June 2023 (Draft Law).

Since the Draft Law may be subject to further amendments either by its initiators, the Government or by the Romanian Parliament along the legislative process, the views expressed in this article may be subject to a further revision once the actual law is enacted.

Brief overview of the Directive

The Directive applies to (i) credit purchasers who acquire the creditor’s rights under a non-performing loan (NPL) agreement or to the NPL agreement itself, concluded by a credit institution established in the EU and (ii) credit servicers acting on behalf of a credit purchaser in respect of the creditor’s claims under a NPL agreement or the NPL agreement itself, concluded by a credit institution established in the EU. It does not apply, among others, to the credit servicing performed by professional lenders (i.e. credit institutions or non-banking financial institutions) themselves.

Briefly, as per the Directive:

• Credit servicers of NPLs need to be authorized in an EU Member State. Once authorised in an EU Member State, they will be able to passport their licence into any other EU Member State.
• Credit purchasers of NPL are not subject to any authorization requirements. Nonetheless, they are subject to various obligations, such as the requirement to appoint a credit servicer to perform credit administration activities unless the credit purchasers are themselves authorized as credit servicers for the NLPs they acquire.
• Both credit servicers and credit purchasers are subject to various obligations including reporting obligations toward the assigned debtors (i.e. the borrowers under the credit agreements), contractual requirements in the relationship between credit servicers and purchasers, as well as to certain outsourcing requirements (in so far as credit servicers are concerned).
• Credit institutions that assign their rights under NPL loans or the NPL loans have information obligations towards prospective credit purchasers to enable them to perform their own assessment of the value of a creditor’s rights under a NPL loan or of the NPL agreement itself, and the likelihood of recovery of the value of that agreement.

Existing credit purchasers regulatory regime and implications deriving from the implementation of the Directive 

Credit purchasers of loan receivables under the current legislation

• Credit purchasers of loan receivables (other than receivables under consumer loans)

In Romania, the purchase of loan receivables on a professional basis is a regulated financial activity which can only be carried out by regulated entities (e.g. authorised credit institutions or non-banking financial institutions).

The Law No. 93/2009 on non-banking financial institutions (NFIs Law) provided that, as an exception to the above rule, purchasing loans portfolios that qualify as ″loss″, according to the National Bank of Romania (NBR) regulations, does not constitute lending on a professional basis and may be undertaken by unregulated entities.

The above mentioned provisions in the NFIs Law were repealed by the Emergency Ordinance No. 52/2016 on consumer credit agreements for residential property (Ordinance on Consumers Loans for Residential Property). However, the NBR maintained the status quo previously regulated under the NFIs Law since according to a NBR Press Release from 20 January 2017 , the NBR has reaffirmed that purchasing loans portfolios granted to corporate clients that qualify as ″loss″, pursuant to the regulations in the field of credit classification adopted by the NBR, irrespective of the legal means used to perform the acquisition, does not constitute lending on a professional basis and may be undertaken by unregulated entities.

Since the opinion above expressed by the NBR, the Regulation No. 16/2012 which provided for the definition of loans classified as ″loss″ was repealed and currently there is no definition of the loans classified as ″loss″ in the existing NBR regulations regarding credit institutions. The NBR Regulation No. 5/2012, which continues to be in force in so far as the classification of loans for non-banking financial institutions is concerned, continues to define the concept of loans qualified as ″loss″ as loans where either: (i) the lender had initiated the recovery proceedings (i.e. either by the pronouncement of a court decision for opening the bankruptcy procedure against the borrower or by starting of any enforcement proceedings for the recovery of the loan receivables); or (ii) the respective loans were due and payable for more than 91 days.

Considering the above, as since the NBR has not issued further guidance in this respect, in so far as the classification of loans provided by credit institutions is concerned, the term ″loss″ could be deemed to have been replaced by that of ″non-performing exposures″, as defined under Article 47 a (3) of the CRR Regulation (i.e. Regulation No. 575/2013 on prudential requirements for credit institutions and investment firms).

• Credit purchasers of loan receivables under consumer loans

Strictly with respect to consumer loans for residential property, the Ordinance on Consumers Loans for Residential Property provides that receivables under non-performing consumer loans for residential property (i.e. loans for which the principal and/or interest is overdue for more than 90 days), which are accelerated or for which the enforcement proceedings were initiated, may be freely assigned to debt collection entities.

Further, with respect to consumer loans (other than for residential property), the Ordinance No. 50/2010 on consumers loans (Consumer Loans Ordinances) provides that receivables under consumer loans which are due or which were accelerated or for which the enforcement proceedings were initiated may be freely assigned to debt collection entities.

Regulatory regime of credit purchasers under the Directive

Under the Directive, rights under ″non-performing credit agreements″ or the non-performing credit agreements (i.e. both consumer and commercial NPLs) may be freely assigned to credit purchasers. These entities do not require any authorization. Nonetheless, they are subject to various obligations under the Directive (as mentioned above in section 1).

The Draft Law provides similar requirements to the Directive and in so far as the definition of ″non-performing credit agreements″ is concerned, it provides that it covers a credit agreement which is clasiffied as ″non-performing exposures″ pursuant to Articolul 47a (3) of the CRR Regulation.

The Draft Law expressely amends the Ordinance on the Consumers Loans for Residential Property as well as the Ordinance No. 50/2010 on consumers loans. However, the version of the Draft Law published for consultation on 12 April 2023 does not amend the provisions of the above consumer ordinances that: (1) define the term ″non-performing loans″ or (2) the provisions regarding the sale of non performing receivables under consumer loans or under the consumer loans for real estate property to debt collection entities. Therefore, the term of ″non-performing credit agreements″ introduced by the Draft Law and the term ″non-performing loans″ used under the Ordinance on the Consumers Loans for Residential Property continue to co-exist and could cause difficulties in the interpretation and application of those legal provisions.

For legal certainty, it would be advisable that in a revised Draft Law the provisions implementing the Directive and the provisions of above two consumers ordinances are aligned in so far as the purchase of non-performing loans deriving from consumer loans are concerned. To allow a standardization of the terminology used within different legal instruments, a cooperation between the initiators of the Draft Law (i.e. the National Authority for Consumers Protection) and the NBR would be opportune.

Existing credit servicing regulatory regime in Romania and implications deriving from the implementation of the Directive

At present time, both the Ordinance on the Consumers Loans for Residential Property as well as the Ordinance on Consumer Loans (Consumer Loans Ordinances) provide that credit servicing with respect to non-performing consumer loans is a regulated activity that can only be performed by professional lenders (i.e. credit institutions and non-banking financial institutions), by non-financial creditors (i.e. real estate developers that perform credit servicing activities in relation to loans granted by them, as well as by legal entities that perform lending exclusively from public funds or made available to them based on intergovernmental agreements), as well as by debt collection entities.

The debt collection activities regarding non-consumer loans is not expressely regulated under the Romanian law. 

Debt collection entitities regulated under the Consumers Loans Ordinances

Debt collection entities are Romanian companies with a mininum share capital representing the equivalent of RON500,000 (i.e. approximately EUR100,000) and they are subject to registration with the National Authority for Consumers Protection. They are subject to various rules of conduct provided under the Consumers Loans Ordinances for the purpose of preventing abusive conducts towards consumers.

Currently, there is a numer of 96 entities that perform debt collection activities and they are registered with the National Authority for Consumers Protection.

Credit servicers regulated under the Directive

According to the Draft Law, the Romanian entities which already carry out credit administration activities in accordance with the national legal provisions as of 30 December 2023 (i.e. the Directive transposition deadline) may continue to carry out the respective credit administration activities in Romania by 29 June 2024 (i.e. end of the transitional period) or by the date they obtain an authorization as credit servicers, whichever occur earlier. The Draft Law does not provide for any transitional provisions with respect to existing debt collection entities which are regulated under the Consumers Loans Ordinances.

Considering that the Draft Law provides that a credit purchaser whose domicile is in Romania and which is not himself authorized to perform credit administration as a credit servicer must appoint either (i) a credit servicer to perform credit administration activities or (ii) a debt recovery entity, one could consider that debt collection entities could remain regulated and continue to perform debt collection activities alongside credit servicers but only with respect to consumer credits. A more restrictive interpretation would be that a credit purchaser is free to decide to whom the servicing for consumer loans would be delegated only by 29 June 2024 (i.e. either to credit servicers or to Romanian debt collection entities) while subsequently to 29 June 2024, a credit purchaser could only use duly authorized credit servicers. In the same interpretation, after 29 June 2024, debt collection entities which are not authorized as credit servicers would need to cease their activities.

To avoid further ambiguities, it would be advisable that the future law for the implementation of the Directive clarifies the legal regime of the existing debt collection currently regulated under the Consumers Loans Ordinances.