Money in the hands

Government to cap interest on late payment interest for non-payment of NPL

The activity of buying, selling and recovering doubtful loans will be regulated and supervised by the Banco de España. This is stated by the government in the draft law on credit administrators and buyers, which was approved by the Council of Ministers on Tuesday, with the dual aim of making it easier for financial institutions to remove doubtful loans from their balance sheets, while at the same time trying to protect borrowers from abusive or usurious collection practices.

For example, the text limits the default interest that can be charged in the event of non-payment by the consumer. The law will also oblige lenders of consumer or mortgage loans to always have a debt renegotiation policy in place prior to any legal action or demand for payment.

Regulated and supervised activity

From now on, if the new law is approved, collection companies that buy a package of non-performing loans (for example, from a bank) will have to appoint a “credit administrator” whose activity must be authorised by the Bank of Spain if the holders of these loans are individuals or SMEs. In order to be authorised by the Bank of Spain, the collection company must have “an adequate policy that guarantees the protection and fair treatment of borrowers”, according to the Ministry of Economy.

It also regulates the purchase and sale of non-performing loans (NPL), ensuring that the conditions and rights of borrowers are respected and transferring to the buyer the obligations of transparency, protection and information, including compliance with the codes of good practice to which the original creditor has subscribed.

In addition, the Bank of Spain will be responsible for supervising the activities of these services and credit purchasers, and for establishing the appropriate system of infringements and sanctions.

Intrum is the world leader in debt collection. Other well-known companies in the sector include Zahonero y Sánchez, Axactor, Lexer and Bierens. Other more popular debt collection companies, such as El cobrador del frac, are in principle outside the scope of this legal reform, as their debt collection service is not specifically focused on financial debts, but on other types of debts (mainly private or commercial debts).

Consumer protection

The bill, which the Ministry of Economy will submit to a public consultation procedure, transposes the European Directive on creditors and credit purchasers.

In addition, the Ministry of Economy has used the text to amend the Law on Consumer Credit Contracts and the Law on Real Estate Credit Contracts in order to introduce guarantees in favour of borrowers, especially in the case of vulnerable groups (beneficiaries of the minimum subsistence income or those with a low income).

Thus, the text limits the interest on arrears that can be charged in the event of non-payment by the consumer. It also defines the cases in which the interest rate on open-ended contracts (as in the case of revolving cards) may be changed, giving the consumer the right not to accept the increase or to terminate the contract. In addition, consumer credit contracts will have to clarify the conditions of compensation for early repayment of the loan, as is already the case for mortgages.

The law will also oblige lenders of consumer credit or mortgages to have a debt renegotiation policy, offering the borrower measures to reach an agreement before taking legal action or demanding payment.

Original story:  Levante | Author: Rosa María Sanchéz
Edition and translation: Prime Yield