On 30 September 2016, the new Government Emergency Ordinance no. 52/14 September 2016 regarding loan agreements granted to consumers for immovable property and on amending and supplementing the Government Emergency Ordinance no. 50/2010 on consumer loan agreements (the „New GEO”) entered in force.
The New GEO includes mainly new rules with respect to consumer loan agreements with regard to the sale, respectively, purchase of immovable property, loan agreements secured by an immovable mortgage or such agreements involving a right related to an immovable asset (the “Consumer Loan Agreements for Immovable Assets”). These agreements are now excluded from the scope of Government Emergency Ordinance no. 50/2010 on consumer loan agreements (the “GEO 50/2010”). Most of the new rules (including certain amendments to GEO 50/2010) apply only to consumer loan agreements entered into after 30 September 2016 i.e., the date of the entry into force of the New GEO.
Some of the changes brought by the New GEO reach further than the consumer loans area. Please see below a summary of some of the main changes brought by the New GEO.
1. New rules regarding the transfer of loan portfolios
a) The New GEO repealed the exception which allowed the transfer of non-performing loan portfolios to entities other than financial institutions
In accordance with Law 93/2009 regarding non-bank financial institutions, professional lending may be carried out only by regulated entities and only such entities may acquire loan portfolios, unless these were non-performing loans.
The New GEO repealed the article stating both the rule and the exception above on the transfer of loan portfolios. Consequently, only regulated entities may acquire loan portfolios, be they performing or non-performing, unless specifically stated otherwise (e.g., by the New GEO as set out in paragraph (b) below). Moreover, by this amendment, the New GEO impacts an area which does not pertain to the sector it seeks to regulate: loans or loans granted to corporate clients.
In a strict interpretation of the legislation as amended by the New GEO, it may be argued that non-performing loans granted to corporate clients may no longer be transferred to entities other than regulated ones. While there may be arguments to the contrary, including based on the idea that the management of non-performing loans is not a professional lending activity, the National Bank of Romania is the only authority competent to decide whether an activity can be qualified as “lending” and whether is performed or not on a „professional basis” or not.
Another interesting aspect that is not clarified by the New GEO is whether non-performing loans granted prior to its entry into force could still be transferred to entities other than regulated ones.
b) Consumer loans may be transferred only to certain regulated entities
Specifically with respect consumer loans (including Consumer Loan Agreements for Immovable Assets) and receivables deriving therefrom, the New GEO sets out that they can be assigned only to credit institutions or non-bank financial institutions authorised to grant such type of loans in Romania, or alternatively, to entities authorised to issue securitized debt instruments regulated by Law no. 31/2006 regarding debt securitization.
By way of exception, receivables deriving from non-performing loans (i.e., loans due for at least 90 days) in relation to which the creditor declared the acceleration of the loan or initiated the enforcement proceedings against the debtor can be acquired by debt collection entities having their registered seat, branch or a representative office in Romania.
2. Debt recovery activities and new enforcement rules
a) New regulatory requirements for debt collection entities dealing with consumer loan agreements
The New GEO introduces certain regulatory requirements for debt collection entities dealing with consumer loan agreements. For example, the debt collection entity is required to have a share capital of at least RON 500,000 (approx. EUR 110,000) and have a registered seat, branch or a representative office in Romania. Moreover, as of 1 January 2017, debt collection entities must register with, and periodically report to, the National Authority for Consumer Protection.
b) Agreements no longer writs of enforcement
Under the New GEO Consumer Loan Agreements for Immovable Assets and related security interests are no longer writs of enforcement (Romanian, titlu executoriu) when assigned to a debt collection entity. Therefore, in order to enforce a Consumer Loan Agreement for Immovable Assets concluded after 30 September 2016, debt collection entities must first obtain a court ruling.
c) New enforcement rules
There are several other new enforcement rules introduced by the New GEO, including the following:
- creditors must prove that they used all their best efforts to prevent the acceleration of the loans, the initiation of the enforcement proceedings or sale of bad debts to debt collection entities creditor are required (i) to inform the consumer with at least 30 days prior to the occurrence of any of the above events; or (ii) when the loan is due for more than 60 consecutive days, to inform the consumer of the possible restructuring of the debt;
- creditors are allowed to declare the acceleration of a loan only when the loan is due for more than 90 consecutive days;
- the period between the acceleration of the loan and the initiation of enforcement cannot be less than 3 months; if more than 6 months pass as of the acceleration of the loan and the enforcement is not initiated, the creditor can no longer charge default interest (unless otherwise agreed with the debtor);
- creditors are required to allow the consumer a 6 months period during which the consumer may try to sell the mortgaged immovable property directly to a third party;
- no enforcement action can be initiated against the debtor during this “grace” period; and
- debt collection entities cannot apply commissions, fees, interest or default interest (other than legal default interest) to consumers.
3. Other changes
a) Right to convert the loan currency
The New GEO further allows the consumer to request the conversion the currency of the loan. The new currency may be either (i) the currency of the consumer’s income or the currency in which they hold assets financing the loan repayment, or (ii) the currency of the member state where the residence of the consumer was at the date the credit agreement or, currently is. The conversion will be performed at the rate published by the National Bank of Romania as at the respective date.
b) Real estate developers get the right to grant consumer loans
Starting with 1 January 2017, real estate developers registered with the National Authority for Consumer Protection will be allowed to grant consumer loans. This seems to be a new exception to the rule according to which lending may be carried out professionally only by regulated entities.