Poland is implementing the NPL Directive. What will change for market participants?
The Act on Credit Servicers and Credit Purchasers of 20 December 2024 was published in the Journal of Laws on 4 February 2025. It implements Directive (EU) 2021/2167 on credit servicers and credit purchasers, known as the NPL Directive.
However enigmatic the title of the Polish act and the directive it is implementing, the essence of the new provisions is to harmonise the rules for acquisition and handling (collection) of outstanding debts. The new regulation is most relevant to the debt collection market and investors who specialise in acquiring non-performing loans. In this article, we briefly consider what consequences the new provisions may have for the Polish debt market and foreign investors holding debt portfolios in Poland or considering investing in such portfolios.
New regulation, new nomenclature, old institutions
The new act adopts the conceptual grid from the Polish version of the directive. This means that some institutions known to the Polish law have now been given new names or described differently.
Therefore, a purchaser (or assignee) of debt is now the credit purchaser, and the act itself makes a distinction between:
- Acquisition of the lender’s rights under a non-performing loan agreement (which in Polish conditions does not occur in practice), and
- Acquisition of claims under a non-performing credit agreement (which is equivalent to debt traded on the Polish market).
A credit agreement and a non-performing credit agreement have their own definitions.
An entity asserting claims on behalf of a credit purchaser is a credit servicer. In turn, an entity performing certain acts on behalf of an credit servicing entity is a credit service provider.
The definition of credit servicing activity is also important. This term includes debt recovery, but also renegotiation of the terms of a credit agreement, receiving and processing complaints, and providing information on changes in the method of repayment of the credit or changes in the interest rate, or receivables and fees charged to the borrower.
New regulations: A revolution on the market?
The key provisions of the new act are those defining the entities and subject matter covered by the act. There are a number of exemptions from the act, most notably for:
- Investment fund companies and investment funds they manage
- Entities authorised to manage debt pursuant to Art. 192(1) of the Investment Funds Act.
This means that the act does not apply to acquisition and collection of debt by debt funds, which is the market practice in Poland.
Advocates, attorneys-at-law and bailiffs are also excluded from the scope of the act. It also does not apply to outsourcing, under which banks, for example, may contract with collection firms to recover debts. This is not a direct exclusion, but follows indirectly from the definition of credit servicing activities as only including the provision of services to credit purchasers (and thus entities other than banks).
All of this suggests that the drafters made an effort not to revolutionise the existing practice, which is based on the sale of non-performing loans to debt funds.
Which asset classes are regulated by the new provisions?
The new act applies only to the transfer, acquisition and servicing of debts meeting two conditions.
First, the debts must arise from agreements entered into by domestic banks, credit institutions or branches of credit institutions. These may include credit agreements, loans, as well as financing in the form of deferred payment or, as defined by the law, “in other similar form.”
Second, it is necessary to classify the agreement or debt as a non-performing exposure in accordance with Art. 47a of the EU’s Capital Requirements Regulation (575/2013). This is important information, as this way it excludes application of the act to the disposal of serviced debt (e.g. via securitisation), while covering debts which may be in delay as little as 90 days— relatively little compared to the delay on debt portfolios disposed of by Polish banks.
For application of the new provisions, it is irrelevant whether the debt is secured. The identity of the debtor may be of some importance, while the provisions of the act and the directive are not very precise, and their analysis may lead to different scopes of application of the act depending on the role of a given entity (purchaser, vendor, or servicer) in a particular transaction.
What should a primary creditor pay attention to?
The most important obligations of primary creditors boil down to disclosure obligations. Pursuant to the new act, the vendor of the debt will have to provide the potential purchaser with information on the debt enabling it to assess the recoverability of the non-performing credit agreement. This obligation will be updated at the request of the entity that entered into negotiations to acquire debts arising from a non-performing credit agreement.
A separate issue that domestic banks and credit institutions should pay attention to is the change of the provisions on exemptions from bank secrecy. Two additional points are added to the current provisions to exempt the bank from the obligation to keep bank secrecy:
- In relation to credit servicing entities and credit servicing providers, and
- When the provision of information covered by bank secrecy is necessary for conclusion and performance of agreements for debt acquisition, concerning a non-performing credit agreement within the meaning of the new act, including the provision of information under the information obligation discussed above.
This is an important change, as the definition of a non-performing credit agreement refers to the classification from the CRR and not the classification of debts as lost within the meaning of Polish provisions (which is the category referred to in the current Banking Law on the exemption from the obligation to keep bank secrecy). In practice, this means that the new provisions will allow purchasers and debt transfer to be sought at a much earlier stage than before.
The most significant changes from the point of view of a debt collection company
The new provisions introduce a revolution in the operations of debt collection companies (credit servicers) by bringing them under supervision. Carrying out this activity requires a separate permit issued by the Polish Financial Supervision Authority, as well as fulfilling a number of supervision obligations. The very broad information obligations and requirements for the manner in which services are provided includes appropriate behaviour toward debtors. The act also regulates the method and obligations related to subcontracting certain credit servicing activities to third parties.
Significantly, however, in light of the realities of the Polish debt market, revolutionary changes will not apply to debt collection companies operating on behalf of debt funds, which are the most common purchasers of debt from banks in Poland. Additionally, the activity of acquiring or collecting debts other than bank debts (e.g. from loans made by lending institutions or services provided by telecommunications companies) will also fall outside the scope of the new act. As a result, when the act comes into force, the revolution will affect few entities, and in principle will not affect the activities of most debt collection companies in Poland.
Foreign investors: A missed opportunity to invest more easily in Poland
The NPL Directive had the ambitious aim of unifying the rules for acquisition and servicing of debts across the EU. The proponents hoped that the new provisions would help to harmonise the regulatory requirements that investors must meet to invest in non-performing loans in a given country. In essence, the idea was to remove obstacles to acquisition of cross-border debt, so that an investor owning a company in one country could acquire debt in many other countries through the same company and not be forced to build a structure in each country where it wishes to invest. Protection of borrowers’ interests, as well as investors, was to focus on the supervision of credit servicers. It was rightly assumed that to respect the borrower’s rights, the entity undertaking debt collection activities is of the greatest importance.
The Polish implementation of the directive has missed this aim spectacularly. The reason the market for bank NPLs is dominated by debt funds (formerly securitisation funds) is due to tax provisions applicable to banks, and bank secrecy provisions. With no changes in the tax provisions, foreign investors will still need to learn the way Polish debt funds operate and use a separate vehicle when investing in Poland. What may be an inconvenience for some is, of course, also a competitive advantage for other entities that already have their fund structures in Poland and can continue to conduct the same business in Poland without revolution. This demonstrates the principle that for nothing to change, sometimes a lot has to change.
Joanna Werner, attorney-at-law, Daniel Smarduch, adwokat, Banking & Project Finance practice, Wardyński & Partners
