Arrears management

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

  • Customers in arrears are subject to the payment of default interest, fees and other charges that add to their debt;

  • The default situation is reported to Banco de Portugal’s Central Credit Register, which will be 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 should contact them to negotiate payment solutions, targeting the out-of-court settlement of credit agreement arrears.

 

Out-of-court arrears settlement procedure (OASP)

Under 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 arrears situations, while avoiding legal recourse.

This negotiation model applies to most credit agreements concluded with consumers, with the exception of leasing agreements.

Out-of-court arrears settlement procedure (OASP)

 

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

  • Immediately after customers request their integration;

  • Between the 31st and 60th day following default;

  • As soon as the customers, who have given prior warning about a risk of default, enter into arrears.

Customers are informed by the credit institution that they have been included in the negotiation model envisaged the OASP within a maximum of five days after this has occurred, through communication on a durable medium.

After the customers in arrears have been included in the OASP, the credit institutions assess the arrears situation and the customer’s creditworthiness. Customers must provide all the requested information and documents whithin 10 days.

In the 30 days after this procedure has been initiated, credit institutions should present customers with one or more settlement proposals if it verifies that customers have the financial capacity to meet the conditions set forth in the said proposals. Within 15 days after receipt of the credit institution’s proposal, customers may also propose other solutions that they consider more suitable. Credit institutions are free to accept or refuse such proposals.

When as a result of the assessment of the bank customers’ creditworthiness, institutions conclude that it will not be possible to present proposals, they should inform the customers accordingly.

Credit institutions must not charge fees for the renegotiation of the terms of the credit agreement under the OASP, in particular as regards analysis and formalisation of the operation.

Credit institutions may, however, charge the bank customers for the costs owed to third parties, such as payments to registry offices and notaries, or tax charges, provided the respective documentary evidence is presented.

Customers who reach an agreement with the credit institution are bound by the new terms of payment, and the arrears situation ends for all purposes.

Over the course of the OASP, credit institutionsare prohibited from:

  • Terminating the credit agreement due to arrears;
  • Initiating legal proceedings against bank customers with a view to redeeming the credit;
  • Assigning some or all of the credit to third parties.

Credit institutions may at any time terminate the OASP if:

  • Attachment or preventive seizure of the custmers’ assets takes place;
  • bank customers enter into an insolvency procedure;
  • bank customers do not have the financial capacity to settle arrears;
  • bank customers do not cooperate in seeking solutions to settle the arrears situation, notably as regards information supply or timely response to the proposals presented;
  • bank customers commit acts which may jeopardise the credit institution´s rights or guarantees, such as causing damage to the property used as collateral for the credit;
  • bank customers refuse the proposals presented by credit institutions or credit institutions refuse the proposals presented by bank customers.

The OASP terminates automatically:

  • Upon full payment of the sums in arrears;
  • Upon agreement on the settlement of arrears;
  • On the 91st day after the bank customer is included in the OASP, unless the parties agree to extend this timeline;
  • Upon the bank customer’s declaration of insolvency.

Credit institutions must inform bank customers, through communication on a durable medium, of the termination of the OASP, describing the legal basis for such termination.

In case of termination of the OASP, customers in arrears on housing credit agreements and who are also borrowers in credit agreements with other institutions may request the intervention of the Credit Mediator, maintaining the guarantees provided in the OASP for an additional 30 days.