EU Directive on Loan Transfers Sparks Legislative Amendments
In a recent parliamentary session, Cyprus legislators delved into a series of government bills aimed at amending the nation’s legislation on loan transfers. The objective is to align with an EU directive that was established to regulate the sale, purchase, and servicing of non-performing loans (NPLs) within European banks.
The directive in question, EU Directive 2021/2167, was introduced to mitigate the accumulation of NPLs and to promote a secondary market for these loans. It stipulates that credit purchasers must disclose detailed information regarding the creditor’s rights and any collateral before the sale of NPLs. Furthermore, it mandates the appointment of a credit servicer to manage the rights and obligations associated with an NPL on behalf of a credit purchaser.
Credit servicers are required to obtain authorization from an EU national supervisory authority, with the exception of EU banks and certain other entities that are already authorized or supervised within the EU. This ensures that only entities incorporated within the EU can be authorized as credit servicers.
The discussions revealed that Cyprus currently has €2 billion in NPLs within its banking system, while credit-acquiring companies (CACs) hold a significant €22 billion. Valentina Georgiadou, the financial ombudswoman, expressed general support for the proposed amendments, highlighting their potential to enhance transparency for credit purchasers and servicers. However, she raised concerns about the broad definition of ‘credit purchasers,’ which could potentially include individuals and not just corporations.
Avgi Chrysostomou-Lapathioti from the finance ministry clarified that under the new legal framework, the licensing of credit purchasers would be prohibited—a departure from the current system that allows licensing for both credit purchasers and servicers. She reassured existing credit servicers that they would not require new licenses under the new regime. Additionally, she noted that the forthcoming framework would prevent the sale of performing loans to credit purchasers from third countries.
With these legislative changes, Cyprus aims to comply with the EU directive and address the concerns raised by Brussels following the country’s failure to transpose the directive into domestic law by the December 29, 2023 deadline.
