The Directive on Credit Servicers and Credit Purchasers (Directive (EU) 2021/2167, the “Credit Servicing Directive”) applies to the sales and servicing of non-performing loans (“NPLs”) issued by a credit institution established in the EU. Ireland transposed the Credit Servicing Directive via the European Union (Credit Servicers and Credit Purchasers) Regulations 2023 (the “Credit Servicing Regulations”) on 21 December 2023 and with an effective date of 30 December 2023. We have previously provided updates and more detailed analysis on the Credit Servicing Directive and the Credit Servicing Regulations: in June 2021, August 2021, November 2021, September 2023, October 2023 and January 2024 respectively.
The Credit Servicing Directive is of particular interest and importance to:
- EU credit institutions (i.e. banks and institutions that accept deposits from the public) who intend to sell NPLs;
- the purchasers of NPLs originated by EU credit institutions; and
- entities servicing such NPLs (i.e. NPLs originated by EU credit institutions) on behalf of purchasers.
The Central Bank of Ireland (the “CBI”) has recently amended the Consumer Protection Code 2012, as amended from time to time (the “CPC Code”) by way of an addendum (the “Addendum”) to align the CPC Code with the Credit Servicing Regulations.
Credit Servicing Firms
A purely domestic authorisation regime for credit servicing firms (the “Credit Servicing Firms Regime”) has been in force in Ireland since July 2015 and the Credit Servicing Firms Regime remains in force following the transposition of the Credit Servicing Directive into Irish law.
The Credit Servicing Firms Regime (which was introduced by the Irish Consumer Protection (Regulation of Credit Servicing Firms) Act 2015 (the “2015 Act”) and amended further subsequently in 2019 and 2022) is under Part V of the Irish Central Bank Act 1997. Unregulated purchasers of Irish SME loans originated by regulated entities and loans with natural persons (“In Scope Loans”) are obliged following the introduction of the 2015 Act to appoint an authorised credit servicing firm to service these loans. The Irish Consumer Protection (Regulation of Credit Servicing Firms) Act 2018 introduced an additional authorisation requirement for legal title holders of and persons who hold strategic control over In Scope Loans. The authorisation regime was further expanded under the Irish Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Act 2022 to cover deferred payment or other similar financial arrangements (including the letting of goods) and other financial accommodation similar to loans with natural persons and SMEs as well as hire purchase agreements and consumer-hire agreements with natural persons.
Unless they are regulated financial service providers authorised to provide credit in Ireland, credit servicing firms need to be authorised under the Credit Servicing Firms Regime if they carry out credit servicing activities which come within the scope of the Credit Servicing Firms Regime and that go beyond the scope of the Credit Servicing Regulations. The CPC Code has been directly applicable to credit servicing firms since July 2015 and this remains the case following the transposition of the Credit Servicing Directive into Irish law.
Credit Servicers
Credit servicers are defined as legal persons that in the course of their business:
- manage and enforce the rights and obligations related to a creditor’s rights under NPLs issued by an EU credit institution on behalf of a credit purchaser (i.e. an entity that purchases an NPL in the course of its trade, business or profession. EU credit institutions are not 'credit purchasers' under the Credit Servicing Directive); and
- carry out one or more of the following ‘credit servicing activities’:
– collecting or recovering payments due;
– renegotiating with the borrower the terms of the loan (except where the servicer is a credit intermediary as defined in Article 3 of the Consumer Credit Directive or Article 4 of the Mortgage Credit Directive);
– administering complaints relating to a creditor’s rights; and / or
– informing the borrower of changes to interest rates or any payments relating to a creditor’s rights.
Only EU-incorporated entities are eligible for authorisation as a credit servicer under the Credit Servicing Directive. You can read more about the definition of NPLs for this purpose here.
If credit servicers carry out credit servicing activities that fall within the scope of the Credit Servicing Regulations (i.e. the servicing in Ireland of NPLs issued by EU credit institutions on behalf of purchasers who are not EU credit institutions) and are not otherwise exempt, they need to be either (i) authorised as a credit servicer under the Credit Servicing Regulations or (ii) authorised as a credit servicer under the equivalent transposing regulations for the Credit Servicing Directive in a different EU member state and passport that authorisation into Ireland under the terms of the Credit Servicing Regulations. Credit servicing firms that were authorised under Part V of the Irish Central Bank Act 1997 before 30 December 2023 are deemed to be authorised as credit servicers under the Credit Servicing Regulations. This is an important concession for the (approximately 20) Irish authorised credit servicing firms currently operating under the Credit Servicing Firms Regime.
CPC Code Addendum
The CBI has recently amended the CPC Code by way of the Addendum to align the CPC Code with the Credit Servicing Regulations. The purpose of the Addendum is to apply the CPC Code to credit servicers. This has been achieved through amending the scope of the CPC Code by adding credit servicers to the list of regulated entities to which the CPC Code applies. The Addendum is effective from 17 September 2024.
We are continuing to keep a close eye on developments in this area and will publish further updates as matters progress. For further information on the Credit Servicing Directive and the Credit Servicing Regulations, please contact Turlough Galvin, Vincent McConnon, Michelle Holligan, Patrick Molloy, Emily Ashford, Joe Beashel or your usual Matheson contact.
This article is provided for general information purposes only and does not purport to cover every aspect of the themes and subject matter discussed, nor is it intended to provide, and does not constitute or comprise, legal or any other advice on any particular matter.