Draft Guideline 1.1: The EBIC believes that flexibility should be maintained regarding the early detection of the financial difficulties of a borrower. The EBIC does not contest the need to establish procedures to identify upstream the financial difficulties of the consumer. However, the EBIC considers that such an obligation should be an obligation of diligence and not results oriented. In addition, it is unclear whether it would be possible taking into account the prospective changes in legislation (Data Protection Regulation and the articles on profiling). If this obligation were to be set, there should be a clear legal basis for the processing of data.
Draft Guideline 2.2:
The EBIC understands that the motivation behind the privacy requirement is to ensure that where meetings are held with borrowers that those meetings are held in private; however, as drafted, the EBIC is concerned that this draft guideline could be misinterpreted as a requirement for a lender to conduct meetings with all of its borrowers in relation to their payment difficulties, which is not practicable.
Furthermore, there is a risk that the reference to data protection legislation could be misconstrued as consent always being necessary, even, for example, in the case of an intermediary communicating payment default information to credit bureaus. The latter is information which is needed to safeguard financial stability and for which consent is not necessary. It should be clarified that the reference to consent relates to personal information such as the causes of default.
As an additional consideration here, in some Member States, mortgage lenders operate on the internet and do not have branches, meaning that it is impossible to fill a physical meeting requirement. We would therefore suggest that “meetings” be replaced by “dialogue”.
Draft Guideline 2.3: The exact aim and meaning of this requirement is not clear i.e. whether it refers to the debt collection being tactful and appropriate, or something else.
Draft Guidelines 3.1-3.4:
These draft guidelines appear to impose new obligations at both a procedural and information level that are not contained within the MCD and do not appear to reflect the aim of Art. 28 of the Directive. As an example of this, 3.1 covers borrowers’ pre-arrears and 3.4(b) imposes a new information disclosure requirement on creditors, in addition to the already extensive information requirements under the MCD. A credit institution will not necessarily have expertise in this area and therefore should not be obliged to provide such information. Rather, this information should be provided by the public instances themselves via the internet.
Furthermore, the requirement to establish policies and procedures for the engagement of consumers already in payment difficulty is covered under guideline 1.2, meaning that there is unnecessary duplication in 3.1.
Finally, it should be clarified in the guidelines that creditors should not be responsible for debt counselling; rather this should be left to local public initiatives.
Draft Guideline 4.1:
The EBIC would like to underline that the majority of cases where borrowers face difficulties in repaying their loans are solved amicably based on lender forbearance. However, this draft guideline appears to oblige banks to accord concessions to consumers in arrears/past due. There is a need to clarify that there is no obligation for creditors to exercise forbearance or to make concessions and the EBIC has a number of strong concerns regarding any obligations in this. Firstly, this could result in borrowers purposely not paying their instalments in the knowledge that they will receive concessions. Secondly, this could have a significant impact on risk-weighted assets, thus increasing the costs of mortgage loans and the risk of credit crunch phenomena. In the event of financial difficulty, there should be an obligation on borrowers to provide detailed financial information, which the lender can assess to ensure that the mortgage is sustainable. Where it is not deemed to be sustainable, the lender should be retain the right to decide not to offer forbearance and proceed to a different solution i.e. voluntary sale, enforcement etc., while the borrower may enter an insolvency arrangement or bankruptcy as a last resort.
As an additional observation regarding bankruptcy/insolvency law: In the event that – despite the creditor’s and consumer’s best efforts – the consumer has to file for insolvency, prior creditor concessions could be interpreted as evidence of the creditors’ knowledge of an impending default. This could result in the creditor being obliged to repay each payment on the credit. To avoid such a scenario, creditors might feel the need to enforce the loan comparatively early, which would also not be in the consumers’ interests.
Furthermore, the requirement on a creditor to offer total or partial refinancing of a credit agreement could present a risk of action being taken against the lender on grounds of a kind of “abusive assistance” (this notion exists in France, for example, in commercial collective actions) in the event that the borrower is still unable to meet his/repayments.
Finally, the creditor’s right of ownership and the legal principle “pacta sunt servanda” would be affected without proper justification.
Against this background it is essential that the creditor is free to make its own properly-weighted decision on which steps and – if applicable – which concessions need to be taken and accorded in each particular case. The EBIC would therefore propose the following redraft of the Guideline:
4.1 The creditor is encouraged to should take into account the individual circumstances of the consumer, the consumer’s interests and rights and his/her ability to repay when deciding on which steps/forbearance measures to take. There is however no obligation for the creditor to exercise forbearance. Forbearance measures can consist of concessions towards a consumer facing, or about to face, difficulties in meeting his/ her financial commitments. Concessions to the consumer could include:
Draft Guideline 5: The requirement on the lender to justify the reasons for the options offered to the borrower would introduce a subjective element to the explanation to be provided and furthermore present a risk that the reasons will be contested in court. It would furthermore place a significant administrative burden on the lender.
A requirement setting out the borrower’s obligation to co-operate with the lender should be included. Where a borrower does not co-operate, for example by ignoring correspondence (indicating that he/she might be unwilling rather than unable to meet repayments), then the protections under the Directive would not apply to the non-cooperating borrower and the lender should be permitted to proceed to the next stage in the process.
Also, it is important that any guidelines covering “non-primary dwelling” type residential mortgage borrowers i.e. buy-to-let borrowers, as a result of the national discretion in the MCD to include buy to let properties within the scope being applied, are formulated so that they do not either: (a) give rise to legal uncertainty or (b) unnecessarily extend mortgage resolution processes beyond the category of family homes, where contrary to buy-to-let which is a ‘discretionary’ type of ownership, the focus is keeping a roof over a family’s head.