The law of 15 July 2024 on transfer of non-performing loans (the “Law”) was published in the Official Journal of the Grand-Duchy of Luxembourg. It aims at implementing Directive (EU) 2021/2167 on credit servicers and credit purchasers into Luxembourg law. The Law primarily sets out a legal framework enabling the transfer of non-performing loans (the “NPLs”) from bank’s balance sheets therefore achieving the creation of a secondary market for NPLs. It also creates 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 (the “FSL”). Finally, it also strengthens the current legal framework regarding notably consumer and mortgage credit agreements by way of amendments to existing laws.
The Law organises the transfer of the creditor’s rights under a non-performing credit agreement or the non-performing credit agreement itself (together “the non-performing credit agreement”) to a credit purchaser.
Prior to entering into a contract for the transfer, the credit institution provides the prospective credit purchaser with the necessary information concerning the creditor's rights (including any collateral) to enable it to assess the value of the creditor's rights under the non-performing credit agreement, and the likelihood of recovery of the value of the agreement. The credit purchaser must ensure the confidentiality of the information provided by the credit institution (including that of the commercial information). On this basis, a transfer agreement can be concluded.
Regarding the credit purchaser itself, it may be a natural or legal person other than a credit institution. If the credit purchaser is domiciled or has its registered office or head office in a third country, it will be required to appoint a representative within the European Union (the "EU"). In case the credit purchaser is domiciled or has its registered office or head office in the EU, the credit purchaser will be required to enter into an agreement with i.a. a credit servicer or credit institution/lender for the performance of credit servicing activities in relation to the creditor’s rights under a non-performing credit agreement entered into with consumers, unless the credit purchaser holds itself the necessary authorisation. The credit servicer will be in charge of one or more of the following activities: (i) collecting or recovering any payment from the borrower (ii) renegotiating with the borrower, (iii) administrating any complaints, (iv) informing the borrower of any changes in interest rates or charges or payments.
The credit servicer is a new category of professional of the financial sector under the FSL. The credit servicer is therefore required to hold an authorisation to carry out its activity, granted by the Commission de Surveillance du Secteur Financier (the "CSSF"). It will furthermore be required to comply with regulatory requirements such as the obligation to have in place policies and procedures, notably regarding anti-money laundering and counter terrorist financing.
Pursuant to the Law, credit servicers will benefit from the passporting regime, enabling them to carry out their activities within the EU, either by way of the establishment of a branch in another Member State or the provision of services on a cross-border basis into another Member State.
In addition, the Consumer Code sets out certain requirements for lenders relating notably to (i) the obligation to provide certain information prior to the amendment of the terms and conditions of a credit agreement and (ii) the exercise, where appropriate, of reasonable forbearance before enforcement proceedings are initiated.
Furthermore, the Law implements Regulation (EU) 2022/2036 amending Regulation (EU) 575/2013 (capital requirements regulation, CRR) and Directive 2014/59/EU (Bank recovery and resolution directive, BRRD) regarding the prudential treatment of global systemically important institutions with a multiple-point-of-entry resolution strategy and methods for the indirect subscription of instruments eligible for meeting the minimum requirement for own funds and eligible liabilities. This is intended to improve resolution process in banking groups, notably when they include third country entities.
Finally, the Law amends the law of 5 August 2005 on financial collateral arrangements, as amended (the “2005 Law”), to increase the protection of financial collateral arrangements and compensation, entered into after the date of entry into force of the Law, from winding-up proceedings, reorganisation measures and other competitive situations in the broadest sense, regardless of the origin or jurisdiction of such proceedings and/or measures. This amendment clarifies the uncertainty that emerged from a recent case-law which suggested that a financial collateral arrangement would not benefit from the 2005 Law protection if the relevant proceedings were launched in a country outside the European Economic Area. The legislator has thus made it clear that the protection shall apply to any such proceedings irrespective of the jurisdiction concerned.
The Law will enter into force on 22 July 2024.
