The new decree-law enacts a 2021 European directive establishing harmonized rules for the sale of non-performing loans between companies, typically banks selling bad loan portfolios to funds, and the requirements for entities purchasing and managing these loans.
The preamble of the law, published today, asserts that it aims to “ensure adequate debtor protection in the context of credit assignment, guaranteeing that the debtor is not placed in a less favorable position” than before.
For mortgage loans, customers have been unable to resume their loans (settle the default, interest, and repay the mortgage in installments) because, upon assignment (the technical term for selling loans to third parties), the loan is no longer governed by the legal regime regulating housing loan contracts.
The new regulations change this situation by stipulating that customers cannot be in a worse legal position than before the credit sale.
When consulted in August about the new regime, the Bank of Portugal explained that it “ensures that borrowers’ rights are not affected by credit assignment, enshrining the principle of assignment neutrality, according to which borrowers cannot be in a worse legal situation than they were with the original lender.”
In mortgage credit cases, customers “cannot, after assignment, be disadvantaged in terms of the protection they have according to existing legal and regulatory norms on housing credit,” stated the banking supervisor and regulator.
The updated regime also demands that the debtor be notified of the credit sale after it occurs and before the first collection, including information about the purchasing entity and the managing entity. This includes outstanding amounts and applicable consumer protection laws.
Banks transferring loans to other entities are now required to biannually report the total outstanding balance, sales during that period, and the average value of assignments to the Bank of Portugal.
The Bank of Portugal will oversee authorized credit managers in Portugal and cooperate with other EU Member States’ authorities for credit managers operating across countries, with the authority to impose sanctions.
In early September, the Bank of Portugal revealed in a report it was unaware of the amount banks had sold in housing loans since 2017 in credit assignment operations to external entities.
The consumer protection association Deco noted the visibility of the consequences from banks’ loan assignment operations became more apparent since 2017, following supervisory directions to clean bad loans from their balance sheets.
Deco reported encountering violations in consumer rights concerning the sale of residential credits to external companies in recent years, especially since that year.
In similar rulings, the Supreme Court of Justice annulled housing loan sales by banks to entities not supervised by the Bank of Portugal in October 2024 and May 2025, citing “fraud to the law.”
The decree-law, coming into force in three months, results from the 2021 directive that had to be enacted by the end of 2023. The delay prompted the European Commission to initiate proceedings against Portugal in the European Court of Justice this year.
