Credit Servicing Directive: dual-regulatory regime on the horizon

Following the end of the public consultation period on the Credit Servicing Directive, the Department of Finance recently published the outcome of the consultation and its decisions on the national discretions.¹ While the Department’s decisions remain subject to change, they provide a good indication of how the Directive will be transposed in Ireland.

The key takeaway is that the Department has signalled it is planning for a dual-regulatory regime:

• the Directive will apply to EU bank originated NPLs transferred or sold post transposition; and

• the existing Irish reguleatory framework will apply to (a) EU bank originated NPLs transferred or sold pre transposition and (b) (both pre and post transposition) NPLs originated by non-bank lenders and to performing/re-performing loans.

This means that a purchaser who purchases EU bank originated NPLs after the transposition of the Directive will not need to be regulated. It remains to be seen how sales of mixed portfolios (NPLs coupled with performing/re-performing loans) originated by EU banks will be dealt with under the Directive.

Some other relevant decisions made by the Department include:

1. Recognition of existing authorisation
   As expected, the Department has signalled that credit servicers already authorised in Ireland will be recognised as authorised credit servicers for the purpose of the Directive.

2. Holding funds
   Credit servicers authorised in Ireland will be allowed to receive and hold funds from borrowers. We note this reflects current market practice for credit servicers authorised in Ireland.

3. Charges arising from default
   The Department has indicated that Ireland’s transposition of the Directive will provide that a creditor can impose a charge on a consumer arising from a consumer’s default but the charge must be no greater than is necessary to compensate the creditor for the cost it has incurred as a result of the default.

The Department has not yet confirmed when it will publish the transposing regulations. We would expect these will be published in Q4 2023 in advance of the transposition deadline on 29 December 2023.

If you have queries or observations regarding the outcome of the consultation or the implementation of the Directive in Ireland or across the EU, please reach out to our team.