Update on the proposed Non-Performing Loans Secondary Market Directive

1. Context

In 2018, the European Commission adopted the proposal for a Directive of the European Parliament and of the Council on credit servicers and credit purchasers (the “Draft Directive”) with the aim of preventing the build-up of NPL’s on bank’s balance sheet via notably the development of a secondary market for NPLs.

2. Key points

Although several key points and definitions remain subject to further negotiations, the Draft Directive would notably i.a.:

  • enable credit institutions to sell their existing NPLs1 to credit purchasers,2 having the necessary expertise and risk appetite, throughout the European Union without the latter having to seek an authorisation to that effect;
  • introduce a new service provider, the credit servicer3 which performs credit servicing activities in relation to the relevant NPLs. These credit servicers will be subject to the prior authorisation and supervision of the designated compent authority in the home Member State ;

3. What’s next? 

At this stage, the European Parliament, the European Commission and the Council of the European Union (together, the “European Institutions”) are working, on a “trialogue” basis, on a compromise text expected in the coming months. In this context, the Council of the European Union recently published a three-column table  detailing the respective position of each of the European Institutions on the Draft Directive. 

Once an agreement has been reached between the European Institutions, the Draft Directive will have to be adopted and published before being implemented into national law by the Member States. 

We will keep you informed of any progress in the adoption of the Draft Directive. In the meantime, do not hesitate to contact one of our experts for any questions. 

[1] NPLs denote loans where the borrower is unable to make the scheduled payments to cover interest or capital reimbursements. When the payments are more than 90 days past due, or the loan is assessed as unlikely to be repaid by the borrower, it is classified as an NPL. 
[2] Any natural or legal person other than a credit institution or a subsidiary of a credit institution which purchases a [creditor’s right under a non-performing credit agreement or the non-performing] credit agreement [itself] in the course of his trade, business or profession.
[3] A person who carries out certain activities in relation to the creditor’s right under a NPL or the NPL itself.
[4] Note on the Proposal for a Directive of the European Parliament and of the Council on credit servicers and credit purchasers, Council of the European Union, 10 February 2021, https://data.consilium.europa.eu/doc/document/ST-6047-2021-INIT/en/pdf.

Aurélia Viémont, Senior Counsel 

Sarah Hantscher, Managing Associate 

Mélanie Poirrier, Associate