Arrears management

Failure to pay credit agreement instalments on a timely basis has serious consequences for bank customers and their households:

customers in arrears are subject to the payment of default interest, fees and other charges that add to their debt;
the default is reported to the Banco de Portugal’s Central Credit Register, which is taken into account in the customer’s risk assessment;
the credit institution may initiate legal proceedings to recover the credit, which may lead to attachment of earnings and the subsequent forced sale of the customer’s assets.

When customers cease to pay instalments, credit institutions must contact them to negotiate payment solutions for the out-of-court settlement of credit agreement arrears.

Out-of-court arrears settlement procedure (OASP)

In the out-of-court arrears settlement procedure (OASP), bank customers benefit from a set of rights and guarantees aimed at facilitating an agreement with credit institutions to settle situations of arrears, avoiding recourse to the courts.

This negotiation model applies to most credit agreements concluded with consumers.

Integrating the customer in arrears into the OASP and assessing their financial capacity

Credit institutions are required to include bank customers in arrears in the OASP in the following situations:

immediately after customers request they be integrated in such a procedure;
when a customer who has previously alerted to a risk of default is late in paying their instalments;
up to the 60th day of arrears. Preferably, so as to adopt adequate measures as soon as possible, institutions must integrate the agreement into the OASP by the 15th day of arrears if the credit agreement is being subject to a Pre-Arrears Action Plan (PRAP), or by the 31st day of arrears, if the agreement is not under a PRAP.

The credit institution must inform the customer of their integration into the OASP within a maximum period of five days, by communication via a durable medium.

After the customer is integrated in the OASP, the credit institution assesses the default and the customer’s financial capacity.

If it does not have sufficient and updated elements to assess the customer’s financial capacity, the institution must request that information and the additional necessary documents. The customer must provide the requested information and documents within ten days, so that the institution may present proposals suited to the customer’s situation.

Presenting proposals under the OASP

Within 30 days following the beginning of the OASP, the institution must present one or more proposals to the customer to settle the arrears, if it is proven that the customer has the financial capacity to fulfil the conditions set out in the proposal(s).

Institutions must prioritise solutions that tackle the arrears situation structurally, in lieu of short-term solutions.

The solutions proposed by the institution may include:

the renegotiation of the credit agreement, with a view to one or more of the following options:
- extending the repayment period;
- setting a period (the “grace period”) when the customer is not called upon to pay principal or principal and interest.
- postponing the repayment (“deferral”) of part of the principal to a future instalment;
- reducing the interest rate applicable to the agreement during a given period;
consolidating (i.e. joining) more than one of the customer’s credit agreements;
celebrating a new credit agreement, to refinance the debt from the existing credit agreement.

In any of these cases, the institution is not allowed to increase the interest rate of credit agreements. To this end:

when renegotiating credit agreements with a variable rate, the institution is not authorised to increase the interest rate spread, with the reference rate established in the agreement continuing to apply;
when concluding credit refinancing agreements, the fixed or variable interest rate (reference and spread) applicable to the new agreement cannot be higher than that established in the original agreement;
when consolidating credit, the institution is not authorised to apply an interest rate higher than the average interest rate weighted by the outstanding amount of each consolidated credit agreement.

Nor is the institution authorised to charge fees for the renegotiation, refinancing or consolidation of any credit agreements aiming to prevent arrears. This prohibition covers, among others, fees to analyse the renegotiation, assess collateral, change contractual conditions and conclude and formalise a new agreement.

However, the institution may charge the bank customer liabilities towards third parties, such as payments to registration offices, notaries or tax-related charges. To this effect, the institution must present the respective justifying documentation.

Within 15 days of receiving the credit institution’s proposal, the customer may propose other solutions they consider more appropriate. The credit institution is free to accept or refuse such proposals.

If, following the assessment of the bank customer’s financial capacity, the institution concludes that it is not viable to submit proposals, it should inform the customer of that fact.

A customer who comes to an agreement with the credit institution becomes bound to the new payment terms, with the arrears ceasing for all purposes.

During the OASP, the credit institution is prohibited from:

terminating the current credit agreement on the basis of default;
initiating legal proceedings against the bank customer with a view to recovering the amount lent;
assigning the credit or passing on its contractual position to third parties.

Monitoring the effectiveness of the solutions agreed under the OASP

The credit institution must assess, on a regular basis, the adequacy of the solutions agreed under the OASP to the financial capacity, objectives and needs of bank customers and, whenever necessary, propose other solutions.

Terminating the OASP

The credit institution may terminate the OASP if:

the customer is deemed insolvent;
the debtor’s possessions are subject to attachment or seizure;
the customer carries out acts liable to endanger the institution’s rights or guarantees;
there being no more ways to regularise the default situation, they decide to:
- terminate the credit agreement based on default, in which case the communication demanding payment must be sent right after the OASP extinction;
- assign the credit or pass on its contractual position, except in situations where under the law, the OASP can be maintained.

The OASP is automatically extinguished if:

the total sum of debt owed is fully repaid;
an agreement is reached to address the default situation.

The credit institution must inform the bank customer, by communication via a durable medium, of the OASP’s termination, setting out the legal basis for such termination.

In case of termination of the OASP, customers in housing loan arrears who also have credit agreements with other institutions may request the intervention of the Credit Ombudsman, maintaining the guarantees set out in the OASP for an additional period of 30 days.

Without prejudice to the right laid down by law, the Banco de Portugal considers that it is good practice for the institution to maintain the credit agreements in default in the OASP, abstaining from terminating such proceedings based on formal criteria. Similarly, it is good practice not to extinguish the OASP if the customer does not cooperate, lacks financial capacity, refuses the proposal presented or if time has passed.

Lodging a complaint

Considering that the credit institution does not provide the necessary support, the bank customer may submit a complaint in the complaints book — in physical form at one of the institution’s branches or in digital form — or directly to the Banco de Portugal by post or via the Bank’s agencies.

Loans Arrears

CONSULT HERE ALL SERVICES