The Government passed Decree-Law no. 58/2013, of 8 May 2013 (New Law) which reviewed and updated the legal framework of credit transactions in what concerns the maturity of such transactions, the interest, the default interest, the capitalisation of interest and the default by the borrower.
The new rules will apply to credit instituitions, financial companies, payment institutions, electronic money institutions and other entities legally authorised to grant credit and that are subject to the supervision of the Bank of Portugal.
Among the rules approved by the New Law the following should be highlighted:
- In the event of default by the borrower, the institutions may not charge an interest rate higher than 3% p.a. above the interest rate set out in the agreement, such rate being applicable to the principal amount due and not paid (including any capitalised interest);
- If agreed in writing, the institutions may capitalise any unpaid interest for periods of 1 month or more;
- The institutions may only capitalise default interest if agreed in writing and within a restructuring or consolidation of credit transactions; and
- No fees may be charged on the ground that the borrower defaulted its payment obligations although institutions may charge fees for recovery of any amounts due and not paid, which in any case cannot exceed 4% of such amounts (with a minimum of €12 and a maximum of €150) or 0.5%, if the unpaid sum exceeds €0,000.
The institutions that breach any of the above rules will be deemed to have committed an administrative offence and will be subject to the payment of a fine which could range between €1,000 and €,500,000 and ancillary sanctions.
The new rules will apply not only to credit transactions and agreements executed after the entry into force of the New Law, but also to events of default under credit transactions and agreements already in place on the date of publication of the New Law that occur after the entry into force of the New Law.
Pursuant to the New Law it will be up to the Bank of Portugal to issue any regulations or clarifications that may be necessary to ensure the application of the new Decree-Law. Considering that some aspects are not clear, in particular, the legality of certain penalty clauses, it is likely that the Bank of Portugal may pass some regulations.
The New Law will enter into force 90 days after its publication, i.e. on 6 August 2013.
Notwithstanding, taking into account the impact of the new legal framework and the changes that banks will have to implement to comply with the New Law, the abovementioned rules will only enter into force 120 days after publication, i.e. on 5 September 2013.