Arrears management

The failure to timely pay credit agreement instalments 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 the Banco de Portugal’s Central Credit Register, which will be taken into account in the customer’s risk assessment;

  • The credit institution may initiate a lawsuit to recover the credit, which may lead to seizure and subsequent forced sale of the customer’s assets.

When customers cease to pay instalments, the credit institution should contact them to negotiate payment solutions, with a view to the out-of-court settlement of credit agreement arrears situations.

 

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 the reaching of an agreement with credit institutions to settle arrears situations, avoiding the need to go to court.

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

Out-of-court arrears settlement procedure (OASP)

 

The credit institution is required to integrate 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 bank customer, who has given prior warning about a risk of default, enters into arrears.

Customers are informed by the credit institution of their integration into the negotiation model underlying the OASP within a maximum of five days after this has occurred, through communication on a durable medium.

After the customer in arrears entered into the OASP, the credit institution assesses the arrears situation and the customer’s creditworthiness. The customer must provide, within a maximum of 10 days, all the requested information and documents.

Within 30 days after this procedure has been initiated, the credit institution should submit to the customer in arrears one or more settlement proposals if it verifies that the customer has the financial capacity to meet the conditions set forth in the said proposals. Within 15 days of receiving the proposal from the credit institution, the customer may also propose other solutions that he or she considers more suitable. The credit institution is free to accept or refuse such proposals.

When the institution concludes, as a result of the assessment of the bank customer’s creditworthiness, that it is not feasible to present proposals, it should inform the customer accordingly.

The credit institution may not charge fees for the renegotiation of the terms of the credit agreement under the OASP, in particular as regards the analysis and formalisation of the operation.

The credit institution may, however, charge the bank customer for the costs incurred before third parties, such as payments to conservatories, notary offices or charges of a fiscal nature, upon presentation of the respective documentary justification.

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

During the OASP, the credit institution is prohibited from:

  • Terminating the credit agreement based on arrears;
  • Taking legal action against the bank customer in order to recover the credit;
  • Assigning some or all of the credit to third parties.

The credit institution may at any time terminate the OASP where:

  • Seizure or preventive seizure of the custmer’s assets takes place;
  • The bank customer enters into an insolvency procedure;
  • The bank customer does not have the financial capacity to settle arrears;
  • The bank customer does not cooperate in seeking solutions to settle the arrears situation, notably as regards information supply or timely response to the proposals presented;
  • The bank customer commits acts which may jeopardise the credit institution´s rights or guarantees, such as causing damage to the property used as collateral for the credit;
  • The bank customer refuses the proposals presented by the credit institution or the credit institution refuses the proposals presented by the bank customer.

The OASP terminates automatically:

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

The credit institution must inform the bank customer, 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.