On the 30th of July 2024, the Credit Servicers and Credit Purchasers Act (hereinafter referred to as the “Act”), Chapter 645 of the Laws of Malta, was promulgated. This Chapter brought about the:
A credit servicer is a legal person who in the course of his business manages and enforces the rights and obligations related to a creditor’s rights and obligations under a non-performing credit agreement or to a non-performing credit agreement itself.
The applicability of the establishment of this framework is to credit servicers acting on behalf of a credit purchaser and to the credit purchaser. A credit purchaser shall appoint an entity as referred to in the Act or a credit servicer to perform credit servicing activities in respect to the creditor’s rights.
A credit servicer shall be duly authorised by the Malta Financial Services Authority (MFSA) or any European regulatory authority to:
These activities shall be done in any host Member State, provided that it permits such holding and receiving of funds. Malta is a Member State which allows such activities.
A European credit servicer shall have the right to act as a credit servicer in Malta provided that information is submitted to the MFSA before commencing such activities in Malta. A Maltese credit servicer may also act as a credit servicer in other EU Member States subject to meeting the national requirements of that Member State.
The activity of holding funds shall be segregated from the funds of the credit servicer and hence, providing safeguards against claims of other creditors against the credit servicer. Moreover, when a borrower of the credit purchaser makes a payment, although the funds are held by the credit servicer, for all intents and purposes of the law, the payment is paid to the credit purchaser.
A credit service provider employed by the credit servicer shall not have the ability to hold funds from borrowers. This is due to the fact that authorisation from the MFSA is not extended to the credit service provider. The employment of a credit service provider shall also be subject to the conditions of the Act. Hence, responsibility shall still lie on the credit servicer to comply with all its obligations.
Moving on to the credit purchasers, they have the right of information from credit institutions looking to sell their credit. The credit purchaser shall also have the necessary information prior to entering into a contract transferring the creditor’s rights.
A credit institution that transfers credit shall also bear the obligation of informing the information listed in the Act, on a biannual basis.
When a credit purchaser is not domiciled or has no registered office in the EU, he shall appoint a designated representative. The designated representative shall be fully responsible for compliance with the obligations imposed on the credit purchaser. Subsequently, the designated representative shall appoint the aforementioned entity or credit servicer.
A credit purchaser shall be prohibited from engaging a natural person to service the credit agreement that they have acquired. Moreover, when the credit purchaser or a designated representative appoints the aforementioned entity or credit servicer, the MFSA shall be informed in writing. Any changes shall also be notified to the MFSA.
Through the Act, the MFSA shall also have the power to appoint an inspector to investigate and inspect the affairs of the appointed entity or credit servicer to conduct credit servicing activities. The inspectors may be an advocate, accountant, auditor, or any person which the MFSA considers to have suitable expertise. Accompanying this power is the right of entry to the premises, subject to prior notice being served. The MFSA shall also have the power to impose administrative penalties and measures subject to a notice in writing.
The Act also imposes amendments to the Insurance Business Act. The amendments provide clarification for better harmonisation of subsidiary legislation with the Insurance Business Act.
The Protection and Compensation Fund (hereinafter referred to as the “Fund”) is being given structure through establishing itself as a body corporate having distinct legal personality. Moreover, the amendments establish that insurance undertakings which carry on motor vehicle liability from Malta shall contribute to the Fund.
The Act is currently in force with the amendments to the Insurance Business Act yet to come in force.
Author: Neil Gauci
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