MPs struggle to implement EU directive on loans

Legislators on Monday discussed a batch of government bills which, combined, will amend current legislation on loan transfers so as to harmonise with an EU directive.

The issue concerns EU Directive 2021/2167 of the European Parliament and of the Council of November 24, 2021 on credit servicers and credit purchasers. Member states should have transposed the directive into their domestic law by December 29, 2023. Having failed to do so by that cutoff date, Nicosia has received a letter of warning from Brussels.

The directive regulates the sale, purchase and servicing of non-performing loans (NPLs) originated by EU banks. It aims to reduce the build-up of NPLs within EU banks, and does so by creating a framework to help foster a secondary market in NPLs, while ensuring this will not adversely affect borrowers.

As regards credit purchasers – non-bank purchasers of NPLs – before sale they must disclose information about the creditor’s rights under the NPL and any supporting collateral, to enable the purchaser to assess the likelihood of recovery. They must also appoint a credit servicer – a legal entity that manages and enforces rights and obligations under an NPL on behalf of a credit purchaser and carries out “credit servicing activities”, such as collecting payments.

Credit servicers must be authorised as such by an EU national supervisory authority, unless they are an EU bank or certain other type of entity authorised or supervised in the EU. Only EU-incorporated entities are eligible for authorisation.

In parliament, MPs heard that at the moment the banking system in Cyprus holds €2 billion in NPLs, with the lion’s share – €22 billion – held by credit-acquiring companies or CACs.

Financial ombudswoman Valentina Georgiadou said her office generally agrees with the proposed amendments, as overall they seem to enhance transparency obligations for credit purchasers and servicers.

But at the same time, she was “troubled” by the fact that the scope of the term ‘credit purchasers’ may cover individuals, not just corporations.

“Cyprus is a small country, so we should be very careful with how these sales are conducted,” the official cautioned.

For her part, Avgi Chrysostomou-Lapathioti of the finance ministry explained that the new legal framework will prohibit the licensing of credit purchasers. By contrast, the current system permits the licensing of both credit purchasers and servicers. The latter receive authorisation from the Central Bank.

The official said that existing credit servicers will not need to obtain a new license.

She also stated that the new framework will bar the sale of performing loans to a credit purchaser from a third country.