Arrears prevention

Before entering into a credit agreement, bank customers must:

Consider whether their income is sufficient to ensure the repayment of the debts they intend to incur – credit instalments are a fixed monthly expenditure of the household budget, with an impact until the loan is repaid in full;
Provide the credit institution with clear and true information about their financial situation so that the institution makes a careful assessment of their ability to repay the loan.

Over the term of the credit, bank customers must:

Maintain a preventive attitude, anticipating possible difficulties in complying with the financial commitments they assumed;
Warn the credit institution of the possibility of not being able to pay the instalments of the credit agreements.

Credit institutions should also monitor the execution of their customers’ credit agreements, aiming at arrears prevention by offering proposals that seek to restructure the credit.

Pre-Arrears Action Plan (PRAP)

Credit institutions should permanently and systematically monitor their customers’ credit agreements, carrying out, at least once of month, the necessary actions to identify any signs of payment difficulties. Institutions should define and implement a pre-arrears action plan (PRAP).

Bank customers must warn the credit institutions of their risk of defaulting on credit agreements, due, for example, to being unemployed or through illness, and the institution must provide them with a document describing all their rights and duties, with contact details to receive communications.

Until 31 December 2023, credit institutions must abide by several additional obligations to implement PRAP, to mitigate the effects of interest rate rises on loans for the purchase or construction of permanent residential property with an outstanding value of €300,000 or less. Find out more about these measures here.

Begin reference to PRAP: assessment of the customer’s financial capacity

Should signs of a deterioration in the bank customers’ creditworthiness be detected, the credit institution must contact them within 10 days to assess their financial capacity.

Bank customers shall provide the information and documents requested by the credit institution within 10 days. The institution is not obliged to assess the customers’ situation if they refuse to supply information or make the required documents available.

Presentation of proposals under the PRAP

Once it establishes that the bank customer has the financial capacity to avoid default, the credit institution must propose, up to 15 days after the documents required being made available, solutions suitable to their financial situation, objectives and needs.

The proposals presented by the institution may include changes to one or more of the following terms of the credit agreement:

Extension of the repayment period;
Application of a grace period for the repayment of the principal or the repayment of the principal and payments of interest;
Deferral of a part of the capital to an instalment at a future date;
Reduction of the interest rate applicable to the credit agreement for a defined time period.

The credit institution may not charge fees nor increase the interest rate on the credit agreement as a result of renegotiating the terms of the credit agreement under the PRAP.

Credit institutions may, however, charge 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, if applicable.

The proposals presented by the institution may also include the consolidation of a number of credit agreements and the entering into of a new credit agreement aiming to refinance the debt in the existing credit agreement.

Monitoring the effectiveness of the solutions agreed under the PRAP

The credit institution should monitor the effectiveness of the solutions agreed under the PRAP, regularly assessing its suitability to financial capacity, objectives and needs of bank customers and proposing other solutions whenever suitable.

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 be it in physical form at one of the institution’s branches or in digital form, or directly at the Banco de Portugal.

Loans Arrears

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