Credit Servicing: Consultation on Transposition of EU Directive

Introduction

The Department of Finance has published a consultation on the transposition of the EU Directive on Credit Servicers and Credit Purchasers (here).¹ This is an important opportunity for persons interested in the non-performing loans (“NPL”) and/or credit servicing markets to provide their views on how the Directive should be transposed.

The consultation period runs from 24 January 2023 to 8 March 2023, with the Directive due to be transposed into Irish law and in effect by 30 December 2023.

Background

Ireland already has a significant national credit servicing regime. This arose in response to concerns that consumers and SMEs could lose regulatory protections as a result of the deleveraging of bank balance sheets, following the 2008/2009 financial crash. The Directive, on the other hand, stems from a desire to foster the development of the EU’s capital markets union by reducing barriers to the trade of NPLs by EU credit institutions in particular. While the two regimes do overlap their focus is different and the Irish regime is generally broader in its application. For further background and an analysis of the Directive in the context of the Irish regime (as at the time the Directive was enacted), you can refer to our earlier briefing: here.

Scope of the Directive vs the Irish Regime

For indication purposes, we have set out below a high level comparison of the scope of (i) the EU Directive, and (ii) the current Irish regime.

As is typical for legislation of this nature, there are also some important exemptions that parties may be able to avail of, depending on the relevant fact pattern (eg the Directive does not apply to credit servicing by a credit institution established in the Union or to certain authorised investment fund entities).

What Questions are Being Consulted On?

The consultation proposes that (i) the existing Irish regime will be preserved for agreements that fall outside the scope of the Directive; and (ii) the Directive’s new requirements will apply to agreements within its scope. The consultation also notes that, in addition to the obligation to transpose the minimum requirements of the Directive, Member States have been given discretion in relation to a limited number of matters. The approach that Ireland should take to these matters forms the basis of the questions posed for consultation.

Those questions are as follows and (with the possible exception of question 1) each of them is likely to be of interest to any business engaged in the NPL or credit servicing markets.

Comment

Many of the questions posed for consultation are likely to be of material importance to potential NPL sellers/purchasers and credit servicing firms. For example, it would be important for existing credit servicing firms to ensure they reply to Question 10 with a view to having their existing Irish authorisations automatically recognised for the purposes of the new EU regime. Given the scale and depth of experience of credit servicing firms in Ireland, the ability to passport that authorisation across the EU should offer an interesting opportunity for new business.

In addition to considering the questions posed by the consultation, credit servicing firms and credit sellers/purchasers should consider how the new requirements of the Directive can best be factored into any proposed NPL sales by EU credit institutions on or after 30 December 2023.