Implementation of the non-performing loans directive in Austria

Background: EU efforts to tackle non-performing loans

For years, the reduction of non-performing loans (NPLs) has been central to European banking policy. Following the 2017 EU Council Action Plan, the European Commission proposed a legislative package in 2018 to address the persistent stock of NPLs across the Union. The resulting Directive (EU) 2021/2167 on credit servicers and credit purchasers (NPL Directive) seeks to create an EU-wide functioning secondary market for distressed debt by harmonising the rules governing the sale of NPLs.

Austria has implemented the NPL Directive through the Credit Servicers and Credit Purchasers Act (Kreditdienstleister- und Kreditkäufergesetz, (KKG)), which entered into force on 18 March 2025. The KKG establishes a comprehensive framework for the authorisation, supervision, and operation of non-bank entities involved in acquiring or servicing NPLs, under the oversight of the Austrian Financial Market Authority (FMA).

Scope and key features of the KKG

The KKG applies to both credit servicers (entities managing and enforcing rights under NPLs on behalf of credit purchasers) and credit purchasers (non-credit institutions acquiring such loans for commercial purposes). NPLs fall within the scope of the KKG if they are classified as non-performing exposures in accordance with article 47a of Directive (EU) 575/2013 on prudential requirements for credit institutions (CRR). Application of the KKG is further limited to such agreements that are at least 90 days overdue or terminated in accordance with Austrian law. CRR credit institutions performing credit services in connection with or purchasing NPLs remain outside the scope of the KKG.

The FMA is designated as the competent supervisory authority, responsible for the formal licensing of credit servicers, ongoing supervision and potential sanctions for non-compliance with the KKG. The KKG also empowers the FMA to conduct on-site inspections, request documentation, and revoke licenses where necessary.

At its core, the NPL Directive and consequently the KKG seek to:

facilitate the sale of NPLs by credit institutions
ensure consistent supervision of credit servicers and credit purchasers across EU member states and
strengthen borrower protection through clear information and conduct requirements.

Credit servicers and credit purchasers

Credit servicers perform functions such as debt collection, renegotiation of loan terms, complaint management, and communications with borrowers; in principle costly debt management services. However, the Austrian legislator has chosen to prohibit credit servicers from receiving or holding borrower funds, increasing administrative effort for all parties involved. Payments must be made directly to the credit purchaser or original lender, which often complicates practical debt management and reconciliation. Credit servicers are subject to a licensing requirement under the KKG.

Credit purchasers are individuals or entities, other than credit institutions, who purchase creditors' rights under NPLs or under the NPL agreement itself, in the course of their business, trade or profession in accordance with applicable Union or member state law. Credit purchasers are not subject to any licensing requirement under the KKG.

Transfer of credit agreements and security rights

The KKG leaves the underlying civil-law framework for the transfer of credit agreements unchanged. Loan sales are typically structured either as assignments or assumptions of contract. An assignment of a receivable under Austrian law, does not require notice to the debtor nor debtor consent. An assumption of contract on the other hand enables the transfer of the entire contractual arrangement, providing the debtor consents.

The KKG introduces mandatory information duties: credit purchasers or servicers must notify debtors of the transfer, including details of the new creditor, the outstanding amount, and applicable supervisory authorities. In the case of an assignment, the debtor could historically discharge its debt by making a payment to its initial creditor, provided it had not been informed about its new creditor. This is no longer possible under the KKG because of the new information requirement. Silent assignments are – even if preferred by the seller and the purchaser – no longer possible either. In addition, the required formal provision of factually correct information to the debtor introduces risks of errors and debtor complaints.

While the KKG clarifies regulatory aspects, it does not affect the transfer of collateral in the case of a sale of NPLs by assignment of the underlying receivable or a transfer of contract. Security rights such as pledges or mortgages must still be transferred individually and, in the case of real estate, registered in the land register. Similarly, the treatment of guarantees depends on their legal form: while sureties pass automatically with the claim, abstract guarantees require a separate transfer agreement. This is true irrespective of whether the security interest is provided by the debtor or a third-party security provider.

Consumer protection

Consumer protection remains a central theme. For loans granted to consumers, credit purchasers must appoint an EU-licensed servicer, credit institution or comparable supervised institution to manage the credit relationship and notify the appointment to the FMA. This ensures that all borrower interactions are handled by regulated entities within the European supervisory framework.

Furthermore, the information duties towards consumer debtors include a declaration that all relevant Union and member state legislation, in particular on consumer protection, remain in force.

Banking license and regulatory clarifications

Before the KKG, the FMA considered the purchase of NPLs by non-banks a factoring activity requiring a banking license under the Austrian Banking Act (Bankwesengesetz, (BWG)). The KKG removes this uncertainty: purchasers of fully disbursed NPLs do not require a banking license, provided they comply with the KKG and (if required by the KKG) engage a licensed credit servicer. This distinction recognises that NPL purchasers do not originate new credit risk but merely assume existing exposures.

Nevertheless, the legislator did not amend the BWG accordingly, nor did it extend the exemption to performing loans. Consequently, only licensed institutions may acquire 'healthy' credit portfolios. The KKG thus provides clarity for NPL transactions but not for the broader secondary loan market.

Stamp taxes

The Austrian stamp duty act (Gebührengesetz, (GebG)) continues to impose stamp duty on written assignments of debt receivables, making large-scale NPL transfers comparatively costly. Exemptions exist for transactions between credit institutions, for factoring arrangements, or securitisations. Assumptions of contract (Vertragsübernahmen) remain exempt from these fees but are often less practical in distressed debt contexts.

From an economic standpoint, the applicable stamp duties remain a significant disincentive to NPL transactions and are unaffected by the KKG.

Banking secrecy and data disclosure

One of the more complex aspects of the new regime concerns Austria’s strict banking secrecy rules under the BWG. Even though the KKG aims to extend the duty of confidentiality to (potential) credit purchasers and their servicers, it does not explicitly resolve how selling credit institutions may share protected debtor information, in accordance with their obligation under the KKG to disclose such information to potential credit purchasers prior to a sale. However, the extension of the duty of confidentiality as well as the legitimate interest of credit institutions in the sale of NPLs are strong arguments in favour of a permitted piercing of the duty of confidentiality. It remains to be seen whether authorities will follow those arguments.

In practice, institutions must rely on borrower consent or interpretative guidance suggesting that disclosure to entities bound by equivalent secrecy obligations may be permissible. The recent amendment to § 38 BWG, allowing electronic consent via strong customer authentication, offers some relief. Nevertheless, legal uncertainty remains until clarified by case law.

Outlook clarity with limitations

The implementation of the KKG marks an important milestone in aligning Austria with the EU’s NPL framework. It introduces much-needed legal certainty regarding licensing requirements and regulatory oversight while reinforcing consumer protection standards.

However, several practical and structural hurdles persist. The prohibition on credit servicers collecting or holding borrower funds, the applicable information and notification duties, and Austrian specifics such as the continued burden of stamp duties and civil-law requirements for transfer of debts and security rights all limit the KKG’s capacity to truly 'ease' NPL sales in practice. Similarly, unresolved issues surrounding banking secrecy may complicate cross-border transactions.

In conclusion, while the KKG successfully establishes the regulatory foundation for a harmonised and transparent secondary market for distressed debt, its practical benefits for market participants will depend in particular on how courts interpret and apply the new framework in the coming years.