Non-performing loans – regulation of credit purchasers and servicers
Following the EU directive, a new law on the non-performing loan market was passed, regulating the credit trading and servicing sector. Collection agencies will be required to obtain a licence and will be subject to supervision by the Czech National Bank. The act also affects persons who purchase credits, usually for the purpose of their recovery: these will not have to have a special licence but will have to comply with a number of obligations. The act will enter into force on 1 May 2024.
The act will only apply to the trading in and the servicing of non-performing loans, i.e., non-performing BNPLs, financial borrowings, credits, and similar financial services if granted by a bank, credit union or foreign bank operating in the EU. Importantly, the act will neither apply to loans and credits granted by non-bank consumer credit providers nor to the administration of non-performing loans by investment fund managers, attorneys, notaries, or bailiffs within the course of providing their services.
Whether a loan is non-performing will be assessed at the time of its transfer. In most cases, this will be a situation when the loan is more than 90 days past due and the non-performing loan servicer considers the borrower unlikely to repay the loan obligations in full without the non-performing loan servicer having to proceed to realise the loan security (collateral).
Non-performing loan servicers will have to obtain a license from the Czech National Bank. The servicing includes not only the recovery of the outstanding debt, but also renegotiating the obligation, attending to a debtor’s complaints and claims, or informing the debtor of changes in the interest rates. For some entities, their existing licence will suffice: these will be, as a rule, banks, credit unions, but also non-bank consumer credit providers. In the licensing procedure, the applicant will have to demonstrate the professional qualification of the persons in the company’s management and their integrity (no criminal record) in the area of lending, the transparency and the origin of funds, and a corporate governance system in place.
The transitional period for carrying out credit servicing activity expires on 29 June 2024. However, if an entity applies for a licence within that deadline, they may continue to operate even after its expiry until the final decision on granting their licence is issued.
In addition to servicers of non-performing loans, the act will also affect traders in non-performing loans. If they want to service non-performing loans, i.e., primarily recover them, they will either have to be licensed or conclude a contract with a licensed non-performing loan servicer.
The act also sets out the information obligations of credit purchasers and credit providers. Under the act, information on offered and transferred non-performing loans and on concluded contracts for servicing of non-performing loans will have to be reported to the Czech National Bank.