Ministry of Finance proposes a draft bill on Credit Servicers and Credit Purchasers

The Bulgarian Ministry of Finance recently introduced for public consultation a bill for a new Credit Servicers and Credit Purchasers Act (“CSCPA”) implementing Directive (EU) 2021/2167 on credit servicers and credit purchasers (“CSD”). The CSD aims at creating a “single market” for distressed assets in the EU and introduces a harmonized regulatory framework for NPL-transactions between banks, credit purchasers and firms providing NPL-related services. The proposed CSCPA bill only concerns NPLs originated by credit institutions, thereby excluding loans provided by non-bank financial institutions from its regime, effectively introducing dual national regime: (i) a new one for loans originated by banks while maintaining the (ii) legacy regime for loans originated by non-bank financial institutions. The service and purchase of NPLs by credit institutions are also excluded from the proposed legislation.

The bill introduces the following features to the Bulgarian financial services industry:

·         New legal regime for the purchase of bank NPLs – a new definition of “credit buyer” is introduced allowing the purchase of loans by natural and legal persons in line with the regime introduced in the CSD, while aiming for high safeguards for the “ex-post” protection of borrowers;

·         Amendments to the Bulgarian Credit Institutions Act (“CIA”) – the activity of acquisition of receivables under loans granted by credit institutions by “credit buyers” is excluded from the scope of the registration regime for financial institutions under the CIA. The purpose of the change is to maximise the range of persons who may acquire claims on non-performing loans and to remove the existing additional requirements for this activity;

·         New licensing regime – the bill provides for a licensing regime for the activity of servicing of claims under non-performing bank loans;

·         New passporting regime for the servicing of bank NPL’s granted by credit institutions on the territory of Bulgaria by servicers of loans from a Member State – in effect a new passporting regime similar to the existing ones in relation to credit institutions/ payment institutions is introduced;

·         Adoption of a robust legal regime for credit servicing activities – updates to the exiting borrower/consumer protection framework (including by amendments to the Bulgarian Consumer Protection Act), including by imposing obligations for creditors to have appropriate policies and procedures in place facilitating restructuring, refinancing, debt consolidation and payment deferrals instead of outright enforcement and realisation over collateral.

The public consultation on the draft legislation will continue until 11 March 2024, after which its submission to Parliament is to be expected. The proposed act may become subject to changes at each of these stages and will only enter into force after its adoption in two readings and promulgation in the State Gazette.

We will keep you updated on the bill. In the meantime, if you would like more information on CSCPA or how the bill may affect your company, please contact Elitsa Ivanova and Konstantin Stoyanov.