The Luxembourg law of 15 July 2024 on the transfer of non-performing loans and its effects on Luxembourg securitisation undertakings

 September 30, 2024 | Blog | Lux Law

Background

The law of 15 July 2024 on the transfer of non-performing loans transposing Directive (EU) 2021/2167 on credit servicers and credit purchasers, entered into force on 22 July 2024 (the NPL Law). This new legislative framework introduces in particular specific obligations for Luxembourg-based entities involved in the acquisition (i.e. credit purchasers) and/or management of non-performing loans (NPLs). A non-performing loan refers, in essence, to a loan where repayment by the borrower is unlikely, or where more than 90 days have passed without the borrower making the agreed instalments.

 

Application to securitisation undertakings

An important aspect to note is the applicability of the NPL Law to securitisation undertakings subject to the Luxembourg law of 22 March 2004 on securitisation. These undertakings generally fall within the scope of the NPL Law unless they are caught within the scope of the Regulation (EU) 2017/2402 which establishes a general framework for securitisation and a specific framework for simple, transparent and standardised securitisation (the Securitisation Regulation). If the undertaking qualifies as a securitisation special purpose entity within the meaning of Article 2 (2) of the Securitisation Regulation, the entity will fall outside the scope of the NPL Law.

Securitisation undertakings falling within the scope of the NPL Law that acquire NPLs concluded with consumers must appoint either a credit servicer, a credit institution established in the Union, or a non-credit institution subject to supervision by a competent authority of a Member State for the performance of credit servicing activities in respect of the NPLs. Securitisation undertakings appointing a credit servicer must notify the CSSF of the identity and address of the credit servicer. This notification must be made at the latest on the date on which the credit servicing activities start.

When a securitisation undertaking appoints a credit servicer, a credit servicing agreement must be entered into between the securitisation undertaking (as credit purchaser) and the credit servicer. Such credit servicing agreement must include at least the mandatory provisions outlined in Article 7 (2) of the NPL Law, which aim in particular at ensuring a minimum level of protection towards the borrowers. Accordingly, the credit servicing agreement must, among other things, provide a detailed description of credit servicing activities to be carried out by the credit servicer, specify the level of remuneration of the credit servicer or how the remuneration is to be calculated, and include a clause requiring the fair and diligent treatment of the borrowers.

In their interactions with borrowers, the securitisation undertakings as credit purchasers are required to act in good faith, fairly and professionally. They must ensure that any information provided to borrowers is not misleading, unclear or false. Borrowers’ personal information and privacy must also be respected and protected, and communications should not involve harassment, coercion or undue influence.

Furthermore, securitisation undertakings engaging in the transfer of a creditor’s rights under a non-performing credit agreement, or the non-performing agreement itself, have to inform the CSSF, on a biannual basis of at least the identity of the new credit purchaser, the aggregate outstanding balance, number and size of the creditor’s rights under the non-performing credit agreement or of the non-performing credit agreement transferred and whether the transfer includes a creditor’s rights under a non-performing credit agreement, or a non-performing credit agreement itself, concluded with consumers and the types of assets securing the non-performing credit agreement, when applicable. The rationale under this obligation is to keep track of on-going transfers by the credit purchaser after the acquisition of the NPLs portfolio.

Worth noting, the NPL Law does not create additional obligations on the investors investing or financing the securitisation undertaking acting as credit purchaser of NPLs.

 

Contact information

The NPL Law therefore introduces several obligations for securitisation undertakings that fall under its scope. For more details on how the NPL Law may impact your operations or if you have specific questions and/or requests on this topic, feel free to contact our experts: Arnaud Barchman Wuytiers van Vliet and Eléonore Desbrugères.

 

Disclaimer

While the greatest care has been devoted to the contents of this publication, AKD cannot be held liable in any way for the consequences of activities undertaken on the basis of this publication.

Background

The law of 15 July 2024 on the transfer of non-performing loans transposing Directive (EU) 2021/2167 on credit servicers and credit purchasers, entered into force on 22 July 2024 (the NPL Law). This new legislative framework introduces in particular specific obligations for Luxembourg-based entities involved in the acquisition (i.e. credit purchasers) and/or management of non-performing loans (NPLs). A non-performing loan refers, in essence, to a loan where repayment by the borrower is unlikely, or where more than 90 days have passed without the borrower making the agreed instalments.

 

Application to securitisation undertakings

An important aspect to note is the applicability of the NPL Law to securitisation undertakings subject to the Luxembourg law of 22 March 2004 on securitisation. These undertakings generally fall within the scope of the NPL Law unless they are caught within the scope of the Regulation (EU) 2017/2402 which establishes a general framework for securitisation and a specific framework for simple, transparent and standardised securitisation (the Securitisation Regulation). If the undertaking qualifies as a securitisation special purpose entity within the meaning of Article 2 (2) of the Securitisation Regulation, the entity will fall outside the scope of the NPL Law.

Securitisation undertakings falling within the scope of the NPL Law that acquire NPLs concluded with consumers must appoint either a credit servicer, a credit institution established in the Union, or a non-credit institution subject to supervision by a competent authority of a Member State for the performance of credit servicing activities in respect of the NPLs. Securitisation undertakings appointing a credit servicer must notify the CSSF of the identity and address of the credit servicer. This notification must be made at the latest on the date on which the credit servicing activities start.

When a securitisation undertaking appoints a credit servicer, a credit servicing agreement must be entered into between the securitisation undertaking (as credit purchaser) and the credit servicer. Such credit servicing agreement must include at least the mandatory provisions outlined in Article 7 (2) of the NPL Law, which aim in particular at ensuring a minimum level of protection towards the borrowers. Accordingly, the credit servicing agreement must, among other things, provide a detailed description of credit servicing activities to be carried out by the credit servicer, specify the level of remuneration of the credit servicer or how the remuneration is to be calculated, and include a clause requiring the fair and diligent treatment of the borrowers.

In their interactions with borrowers, the securitisation undertakings as credit purchasers are required to act in good faith, fairly and professionally. They must ensure that any information provided to borrowers is not misleading, unclear or false. Borrowers’ personal information and privacy must also be respected and protected, and communications should not involve harassment, coercion or undue influence.

Furthermore, securitisation undertakings engaging in the transfer of a creditor’s rights under a non-performing credit agreement, or the non-performing agreement itself, have to inform the CSSF, on a biannual basis of at least the identity of the new credit purchaser, the aggregate outstanding balance, number and size of the creditor’s rights under the non-performing credit agreement or of the non-performing credit agreement transferred and whether the transfer includes a creditor’s rights under a non-performing credit agreement, or a non-performing credit agreement itself, concluded with consumers and the types of assets securing the non-performing credit agreement, when applicable. The rationale under this obligation is to keep track of on-going transfers by the credit purchaser after the acquisition of the NPLs portfolio.

Worth noting, the NPL Law does not create additional obligations on the investors investing or financing the securitisation undertaking acting as credit purchaser of NPLs.

 

Contact information

The NPL Law therefore introduces several obligations for securitisation undertakings that fall under its scope. For more details on how the NPL Law may impact your operations or if you have specific questions and/or requests on this topic, feel free to contact our experts: Arnaud Barchman Wuytiers van Vliet and Eléonore Desbrugères.

 

Disclaimer

While the greatest care has been devoted to the contents of this publication, AKD cannot be held liable in any way for the consequences of activities undertaken on the basis of this publication.