Non-Performing Loans and their regulation:
On the 14th of March 2025 the Draft Bill on credit servicers and credit purchasers was published in the Official Bulletin of the Spanish Parliament (Cortes Generales). Pursuant to said Draft Bill EU Directive 2021/2167 (the “Directive”) is transposed into Spanish Law and key regulations like the Law on Consumer Credit Contracts and the Real Estate Credit Law are modified. The principal aim of this text is to establish a harmonised legal framework for the development of secondary markets for Non-Performing Loans (NPLs), whilst ensuring the protection of borrowers.
With this regulatory proposal, Spain is moving towards the professionalisation of the credit default management sector, promoting transparency in assignment operations and striking a balance between financial efficiency and the rights of the debtor.
NPLs are loans whereby a high risk of default exists or the term of 90 days without payment has already been exceeded. As far as banks are concerned, the accumulation of NPLs is an obstacle to the granting of new credit, as banks’ profitability is affected. Therefore, following the 2008 financial crisis and the economic impact of the COVID-19 pandemic, the European Union adopted a comprehensive strategy to reduce NPLs.
The Directive, passed in November 2021, is one of the pillars of this strategy. It aims to facilitate the development of an efficient and transparent European NPL market that has common rules that allow non-banking entities (like funds or management companies) to acquire Non-Performing Loan portfolios and, manage them professionally through authorised third parties.
Scope of application and nationwide reach:
The Spanish Draft Bill transposes the principal elements of the Directive, but expands its reach regarding various key points:
- Along with credit entities, financial credit institutions (establecimientos financieros de crédito, EFCs) will also be considered assubject originators.
- The activity of the credit administration will be regulated as a new activity subject to the authorisation of the Bank of Spain.
- Additional debtor protection obligations will be established that go beyond what is required by the European legislator, such as the offer of a payment plan in certain cases.
The main innovations of the Draft Bill:
- The credit servicer
The role of credit servicer is introduced, which is defined as a legal person who, on behalf of a credit purchaser, is tasked with the management of credits (including collection, renegotiation or enforcement). To operate, they will need to obtain an authorisation from the Bank of Spain and register themselves in a specific registry.
This authorisation will not be required for entities that are already supervised (like banks or EFCs) when acting on their own credits. However, it will be obligatory for those legal persons that manage credits acquired by third parties, which consequently professionalises and organises the NPL recovery activity.
- Obligation to appoint a servicer
When the purchaser of a Non-Performing Loan is not a credit entity or an EFC, and the debtor is a natural person, micro-business or SME, an authorised credit servicer must be appointed to guarantee an adequate relationship with the debtor. This requirement seeks to ensure that the most vulnerable borrowers are managed by entities subject to regulatory standards and supervision.
- Information and debtor protection obligations
The Draft Bill sets out the obligation to inform the debtor about the assignment of their debt before any collection action takes place, including the new identity of the creditor and of the appointed servicer.
Furthermore, the purchaser of the credit must respect the rights and guarantees that the debtor had before the original lender, including those deriving from the Codes of Good Practices to which a specific entity may have to adhere. The Draft Bill also requires the credit servicers to have effective customer service channels, internal debt renegotiation policies and protocols for the fair treatment of vulnerable people.
- Obligation to offer a payment plan
As a new development with the respect to the Directive, the Spanish Government is seeking to introduce an additional protection measure in the Consumer Credit Law (article 30 bis): in the event that the lender plans to assign the credit of a vulnerable individual, it must first offer a payment plan with possible reductions. This measure is intended to prevent the debtor from missing out on the possibility of reaching a reasonable agreement before the credit passes into the hands of a third party.
- Obligations for the purchaser of credits
The purchaser must make sure that they have enough information to adequately assess the credits they acquire and must notify the Bank of Spain of their acquisition. If the purchaser is an entity domiciled outside the EU, then it must appoint a legal representative in the European Union to ensure compliance with the applicable regulatory framework.
- Supervision and penalties
The Bank of Spain will be the competent authority responsible for authorising, supervising and, where appropriate, sanctioning credit servicers and purchasers, as well as originator institutions in respect of their obligations. At the same time, a specific complaints system for borrowers will be set up, which will be assumed, initially, by the Bank of Spain’s Complaint Service and later, by the Independent Administrative Authority for the Defence of Financial Customers, which is currently in the legislative pipeline.
In short, the Draft Bill represents a decisive step forward in the regulation of the Spanish NPL market. Through an ambitious transposition, the Government seeks to balance two essential objectives: on the one hand, to facilitate the assignment and professional management of NPLs in a secure environment that is harmonised with European regulations, and on the other, to reinforce debtor protection, especially in situations of vulnerability.
Pending final approval, the text offers a predictable and coherent framework for the different financial operators, including banks, funds, servicers and consumers, providing greater legal certainty and contributing to the proper functioning of the secondary market for NPLs in Spain.
Álex Santolaria
Vilá Abogados
For more information, please contact:
4th April 2025
