Credit servicers and credit purchasers

Act No 106/2024 on credit servicers and credit purchasers (hereinafter ‘the Act’) introduces new legislative provisions on the servicing and purchase of non-performing bank loans (NPLs). It took effect on 1 June 2024.

The Act changes the status quo by making credit servicing a regulated activity within its remit. This activity requires authorisation as a credit servicer or authorisation resulting from another financial market authorisation, specifically a banking authorisation or a non-bank lender’s authorisation pursuant to the Consumer Credit Act (Act No 129/2010).

The Act transposes into Slovak law the requirements set out in Directive (EU) 2021/2167 of the European Parliament and of the Council on credit servicers and credit purchasers.

The Act creates a legal framework for credit servicing and credit purchasing. This enables credit institutions to better deal with loans that become non-performing by improving conditions for the sale of the credit to third parties (i.e. credit purchasers). By transferring credit agreements to credit purchasers that havethe necessary risk appetite and expertise to manage them, credit institutions can address situations where they face a large build-up of NPLs or lack the staff or expertise to properly service them.

The Act only applies to loans that are:

• granted by credit institutions;
• classified as a non-performing exposure in accordance with Article 47a of the European Union’s Capital Requirements Regulation (CRR); and
• transferred by a credit institution to a purchaser that is not itself a credit institution (credit purchaser).

As regards its temporal applicability, the Act only applies to loans transferred no earlier than its effective date, i.e. 1 June 2024.

A credit servicer may perform credit servicing activities in Slovakia after being granted an authorisation by Národná banka Slovenska (NBS). With this authorisation, a credit servicer may also perform credit servicing activities in other EU Member States after notifying NBS of its intention to do so, in accordance with Section 15 of the Act.

Credit servicing here means exclusively activities performed for a creditor by another person. In the debt management industry, this is also referred to as ‘mandate management’.

Before the Act took effect, credit servicing was classified as an unregulated trade. The Act changes this by making credit servicing a regulated activity within its remit. This activity requires authorisation as a credit servicer or authorisation resulting from another financial market authorisation, specifically a banking authorisation or a non-bank lender’s authorisation pursuant to the Consumer Credit Act. Outside the remit of the Act, debt management remains an unregulated trade.

Entities performing credit servicing activities in Slovakia without an authorisation on 1 June 2024 may continue performing them without an NBS authorisation until 30 October 2024.

Where a non-bank lender authorised under the Consumer Credit Act intends to perform credit servicing activities in Slovakia, it must notify NBS at least 30 days before commencing these activities. It must also demonstrate that its internal regulations and procedures are compliant with the Act. A non-bank lender’s authorisation does not, however, authorise credit servicing activities in other EU Member States.

In view of the above transitional period, non-bank lenders which perform credit servicing activities and intend to continue doing so under their existing authorisation must notify NBS of this intention by 31 October 2024 and must demonstrate the compliance of their internal regulations and procedures with the Act by 30 November 2024.

Information for credit servicers from other EU Member States

In accordance with Section 14(3) of Act No 106/2024 on credit servicers and credit purchasers (hereinafter ‘the Act’), credit servicers from other Member States may commence credit servicing activities in Slovakia after receiving confirmation from Národná banka Slovenska (NBS) that NBS has received notification from the credit servicer’s home supervisory authority of the credit servicer’s intention to perform credit servicing activities in Slovakia (hereinafter the ‘notification’).

If the credit servicer from another Member State has not received NBS’s confirmation of receipt of the notification, it may commence credit servicing activities in Slovakia two months after the notification was sent.

Credit servicers from other Member States may perform credit servicing activities in Slovakia to the extent that they are authorised to perform them in their home Member State, either through a branch or under the freedom to provide services. Credit servicers from other Member States are subject to the provisions of Section 23 of the Act concerning obligations towards borrowers.

Such credit servicers must comply with the Act’s provisions which impose obligations on credit servicers from other Member States, as well as with other Slovak laws or regulations applicable to their activities in Slovakia, i.e. general good rules.