Changing the terms of a credit agreement and forbearance policies and measures: new obligations on lenders in consumer and residential property credit agreements

Amendments to the Consumer Credit Regulations, S.L. 378.12 (the “Consumer Credit Regulations”) and to the Credit Agreements for Consumers Relating to Residential Immovable Property, S.L. 378.10 (the “Residential Property Credit Agreements Regulations”) have come into force on the 30 December 2023. These were published in the Government Gazette by Legal Notice 17 and Legal Notice 18 of 2024 respectively on the 2 February 2024 (the “Amendments”).The Amendments transpose Article 27 of Directive (EU) 2021/2167 of the European Parliament and of the Council of 24 November 2021 on credit servicers and credit purchasers (what is commonly referred to as the “NPL Directive”). It is pertinent to note that the Amendments been reproduced and reincluded in the new Consumer Credit Directive (“CCDII”) which was published on the 9 October 2023^[1] and therefore these provisions will feature in any eventual new local set of consumer credit regulations which will be required to transpose CCDII.By way of background, the Consumer Credit Regulations apply to an array of consumer lending products such as personal loans and overdrafts, credit cards and short-term credit products, subject to certain limits and exceptions. On the other hand, the Residential Property Credit Agreement Regulations are concerned primarily with lending which is secured by a hypothec or privilege on residential immovable property (such as a home loan).The Amendments address the following obligations on creditors:

• the modification of the terms and conditions of a credit agreement;

Prior to modifying the terms and conditions of the credit agreement, the creditor shall communicate the following information to the consumer:(a)a clear description of the proposed changes and, where applicable, of the need for consumer consent or of the changes introduced by operation of law;(b) the time period for the implementation of these changes;(c) the means for complaint available to the consumer regarding these changes;(d) the time period available for filing any such complaint; and(e) the name and address of the Arbiter for Financial Services as established under the Arbiter for Financial Services Act before whom the consumer may submit the said complaint.It is understood that this new obligation does not impact other ‘related’ obligations already imposed on creditors in the Consumer Credit Regulations and in the Residential Property Credit Agreements Regulations such as procedures in the case of changes relating to the borrowing interest rate. Although procedures relative to changes in a consumer credit agreement may have already been described by creditors in their respective sanction letters, terms and conditions or similar documentation, creditors will need to ensure that when they carry out changes to consumer credit agreements, as a minimum, they will need to comply with this new provision and their processes updated accordingly.

• forbearance policies and types of forbearance measures

Creditors are required to have adequate policies and procedures to ensure that they make efforts to exercise, where appropriate, reasonable forbearance before enforcement proceedings are instituted. The forbearance measures shall take into account, among other elements, the consumer’s circumstances and among other possibilities may consist of:(a) a total or partial refinancing of a credit agreement;(b) a modification of the existing terms and conditions of a credit agreement, which may include among others:(i) extending the term of the credit agreement;(ii) changing the type of credit agreement;(iii) deferring payment of all or part of the instalment repayment for a period;(iv) changing the interest rate;(v) offering a payment holiday;(vi) partial repayments;(vii) currency conversions;(viii) partial forgiveness and debt consolidation.^[2][3]Finally, in so far as default charges are concerned, the Amendments require that these are not to be greater than is necessary to compensate the creditor for costs incurred by it as a result of the default.___________________[1] CCDII was published in the Official Journal of the European Union on the 30 October 2023 and came into force on the 19 November 2023. Member States have until 20 November 2025 to transpose CCD II, with the relative national measures to apply from 20 November 2026.https://ganado.com/insights/publications/the-consumer-credit-directive-revamped/[2] The list of forbearance measures is without prejudice to Banking Rule 9 of the MFSA on measures addressing non-performing and forborne exposures and the European Central Bank Guidance to banks on non-performing loans.[3] The Residential Property Credit Agreements Regulations already contained some provisions relating to forbearance including the Fourth Schedule to the said Regulations which incorporates guidelines issued by the Director General (Consumer Affairs) in relation to arrears and foreclosures (enforcement). As a matter of fact, the Fourth Schedule already included examples of forbearance measures as well as the obligation of creditors to exercise reasonable forbearance and the communication which should take place between creditors and borrowers experiencing payment difficulties. However, it can be said that the Amendments introduced by Legal Notice 18 of 2024 specifies more clearly that this is obligation of creditors.Author: Catherine Formosa (Senior Associate, Ganado Advocates)