On 12 July 2024, the Luxembourg Parliament adopted the draft bill No. 8185 (the NPL Law) transposing Directive (EU) 2021/2167 regarding credit servicers and credit purchasers entered into force on 28 December 2021[1]. The NPL Law provides an adequate framework for credit institutions to address non-performing loans (the NPLs) on their balance sheets and reduce a potential risk of future NPL accumulation. Additionally, it introduces new categories of service providers which will be subject to authorisation requirements under the law of 5 April 1993 on the financial sector, as amended.
(To delve deeper into this topic and learn about all the new developments introduced by the NPL Law, please refer to our previous publication, of our banking team).
NPL Law and Luxembourg Securitisation Vehicles
The NPL Law is applicable to the following entities:
- EU credit institutions selling NPLs;
- Credit purchasers of NPLs, who are not credit institutions, but they purchase creditor’s rights under NPLs from EU credit institutions as part of their business; and
- Credit servicers that manage and enforce rights relating to NPLs on behalf of credit purchasers.
Luxembourg securitisation vehicles (the SVs) governed by the Luxembourg law of 22 March 2004 on securitisation may fall within the scope of the NPL Law if, as part of their activities, they intend to purchase NPLs issued from EU credit institutions. As a result, the obligations laid down in the NPL Law will apply to SVs acting as credit purchasers of NPLs, as defined in the NPL Law.[2]
Obligations for SVs acting as credit purchasers under the NPL Law
Luxembourg SVs, acting as credit purchasers would need to:
- appoint a credit servicer to manage NPLs where the borrower is a consumer;
- ensure that Luxembourg provisions on contract enforcement, consumer protection, borrower's rights, insolvency rules credit application, bank secrecy and criminal law remain in force;
- notify the Commission de Surveillance du Secteur Financier (the CSSF) every six months, in case the Luxembourg credit purchaser transfers the creditor’s rights under the NPL or assigns the NPL itself, regarding:
- the legal entity identifier (LEI) of the new credit purchaser;
- the total outstanding amount of the creditor's rights under the NPL that has been transferred or assigned;
- the number and volume of the creditor's rights under the NPL transferred or assigned;
- if the transfer or assignment includes the creditor’s rights under the NPLs entered into with consumers and, where applicable, the types of assets securing the NPLs.
- inform the CSSF, no later than the date on which the credit servicing activities commence, of the identity and address of the credit servicer (in case it has been appointed). In case the credit purchaser appoints a different entity from the one notified, it shall inform the CSSF no later than the date of such change and indicate the identity and address of the entity; and
- inform the CSSF of the credit servicer’s identity and address (if appointed) no later than the start date of the credit servicing activities. If a different entity is appointed by the credit purchaser, the latter shall inform the CSSF of the new entity’s identity and address by the date of the change.
Our experts at CMS Luxembourg will keep you up to date on further developments on this topic.
[1] Directive (EU) 2021/2167 of the European Parliament and of the Council of 24 November 2021 on credit servicers and credit purchasers and amending Directives 2008/48/EC and 2014/17/EU.
[2] According to article 1 (2) of the NPL Law credit purchaser means “any natural or legal person, other than a credit institution, who, in the course of its commercial or professional activities, purchases the rights held by a creditor under a non-performing credit agreement or the non-performing credit agreement itself”.
