New NPL Act in Hungary

Background and objectives

The EU's NPL Directive was introduced to tackle the ongoing challenge of non-performing loans across Member States, with the aim of reducing existing NPL volumes and preventing their future build-up. The new Hungarian act mirrors these objectives, seeking to facilitate the transfer of NPLs from credit institutions, to create a clear legal framework for credit servicers and purchasers, and, importantly, to strengthen consumer protection for borrowers.

Scope and exemptions

The act governs the transfer and management of NPLs originated by credit institutions and non-credit institution lenders (financial enterprises) within Hungary. However, it does not apply to alternative investment fund managers, UCITS fund managers, credit institutions based outside the EEA (except in certain cases), acquisitions of non-performing loans by EEA-based credit institutions or non-bank creditors, special-purpose entities under the Securitisation Regulation, or the activities of attorneys, notaries and court bailiffs.

Regulatory changes and licensing

A key change introduced by the act is the removal of the National Bank of Hungary (NBH) licensing requirement for purchasers of NPLs. This means that any individual or entity, other than a credit institution or financial enterprise, acquiring NPLs or creditor rights as part of their business is no longer required to obtain a licence from the NBH to carry out such activities. This represents a significant departure from the previous regime, under which only licensed financial institutions could acquire NPLs.

However, it is important to note that while the purchase of NPLs no longer requires a licence, the enforcement of NPLs does. Only licensed credit service providers are permitted to undertake credit enforcement activities. As a result, every NPL purchaser must engage a legal entity or organisation that is authorised to manage and enforce creditor rights arising from non-performing credit agreements on their behalf. Credit servicing activities include collecting payments, renegotiating terms, handling complaints and notifying borrowers of changes to terms.

The above rule does not apply to foreign credit service providers. Such service providers may operate in Hungary either through passporting or by establishing a branch, both subject to NBH supervision.

Financial institutions already licensed for lending or for purchasing NPL receivables are allowed to continue to provide credit servicing without the need for further authorisation.

It should also be noted that for other types of receivables – such as those arising from performing loans, intercompany lending, leasing or factoring – the existing licensing requirements remain unchanged.

Consumer protection and supervisory powers

The act places a strong emphasis on the protection of borrowers. Credit servicers are required to act fairly, transparently and in compliance with all relevant consumer protection and data privacy laws in their dealings with any individual or legal entity, including successors, which entered into a credit agreement with a credit institution or financial enterprise. While these obligations may appear familiar, the NBH is now expressly empowered to supervise both domestic and cross-border credit servicers, with the authority to impose sanctions for serious breaches or shortcomings.

Credit purchasers and servicers are also subject to regular disclosure requirements, including half-yearly reporting to the NBH. The regulator maintains a public register of authorised credit servicers and actively monitors compliance with the new regime.

Implications for market participants

The new legal framework is expected to invigorate the secondary market for NPLs in Hungary by reducing entry barriers and enhancing transparency. Prospective investors – both domestic and international – should carefully consider the new requirements, particularly in relation to the engagement of licensed credit servicers and ongoing reporting obligations. These changes present a timely opportunity for market participants to expand their activities in Hungary's NPL market, provided they adapt to the updated regulatory landscape.

For further guidance on navigating the new Hungarian NPL regime, please go to https://www.schoenherr.eu/news/info-corners/npl-directive, or to discuss specific investment opportunities, please contact our team. 

authors: Gábor Pázsitka, Nóra Ordódy-Nagy, Bálint Bodó.