Kyriakos Pierrakakis has announced two new measures during debate on the bill on private debt and the operation of credit servicing firms (servicers).
The aim is to reduce the cost of repaying debts and make arrangements more secure and predictable.
1. Fixed 3% interest rate for vulnerable and eligible debtors under the out-of-court mechanism
The first amendment adds a new paragraph 3A to Article 14 of Law 4738/2020, setting a fixed annual interest rate of 3% for debt restructuring agreements with financial institutions concluded under the out-of-court mechanism and covering specific categories of debtors.
Specifically, the arrangement covers:
a) Debtors who meet the criteria for a vulnerable debtor, under point (a) of Article 217 of Law 4738/2020, and hold the relevant certificate of vulnerable debtor status.
b) Debtors classified as eligible under point (b) of paragraph 3 of Article 14 of the same law (that is, the entire middle class is included).
The interest rate is set at 3% per year and remains fixed for the entire term of the arrangement. Its application does not depend on whether the debts are secured by collateral or other specific forms of security, or on the category of financial institution.
Applying the fixed interest rate becomes a mandatory term of the restructuring agreement.
Currently, the interest rate is 3% in the initial period for debts secured by collateral and 4% for the first three years for unsecured debts. It then rises to a floating rate of three-month Euribor +2.5% for debts secured by collateral and three-month Euribor + 3% for unsecured debts.
At the current Euribor rate of 2.67%, this means that after three years the rate under the out-of-court mechanism would reach 5.17% for debts secured by collateral and 5.67% for unsecured debts. Under the new arrangement, the rate for the categories of debtors above will remain fixed at 3% for the entire term, regardless of whether the debt is secured by collateral. The arrangement applies to payments from 1 December 2026.
Example:
A debt of 100,000 under the restructuring agreement, with a repayment term of 240 months and no step-up mechanism applied. Under the current regime, the monthly instalment is recalculated after the first 36 months, based on the outstanding debt and the new interest rate for the remaining 204 months.
Example A: Secured claim of €100,000
| | Current regime | Proposed regime |
|---|
| Interest rate for first 36 months | 3% | 3% |
| Monthly instalment for first 36 months | €554.60 | €554.60 |
| Interest rate for following 204 months | 5.176% | 3% |
| Monthly instalment for following 204 months | €653.50 | €554.60 |
Example B: Unsecured claim of €100,000
| | Current regime | Proposed regime |
|---|
| Interest rate for first 36 months | 4% | 3% |
| Monthly instalment for first 36 months | €605.98 | €554.60 |
| Interest rate for following 204 months | 5.676% | 3% |
| Monthly instalment for following 204 months | €685.56 | €554.60 |
Applying a fixed interest rate of 3% for the entire term of the arrangement, instead of the current floating rate after the first three years, substantially reduces the total cost of servicing the debt.
Specifically, for a debt of €100,000 with a 20-year repayment term, the total benefit to the debtor is about €20,200 in the case of a secured claim and €28,600 in the case of an unsecured claim.
Increase in fines
The second amendment significantly increases the fines imposed on credit servicing firms for breaches, as determined by the competent supervisory authority, the Bank of Greece. The maximum fine, currently €500,000, is being raised to a maximum of five million euros.
According to the finance minister, this makes it significantly more costly for servicers to breach their obligations under the legal framework, as the maximum fine is increased tenfold.
The above provision concerns fines imposed by the Bank of Greece under Article 27 of Law 5072/2023. These include, among other cases:
- a credit servicer fails to meet the requirement for a contractual relationship between the credit servicer and the credit purchaser, or enters into an outsourcing agreement in breach of the article governing the outsourcing of activities by a credit servicer, or the credit service provider to which credit servicing activities are outsourced commits a serious breach of the legislation in force,
- a credit servicer fails to meet the requirements for its organisational framework for governance and internal control mechanisms, resulting in the rights of borrowers not being safeguarded and compliance with personal data protection rules not being ensured,
- the credit servicer’s policy is inadequate to ensure the proper treatment of borrowers in accordance with the law,
- the credit servicer’s internal procedures do not provide for the recording and handling of borrowers’ complaints, as required by law,
- a credit purchaser based in Greece or, where applicable, its appointed representative fails to disclose information on the appointment of credit servicers or other entities, and on the notification to the competent authorities of credit transfers,
- a credit purchaser fails to comply with the legal requirements concerning the obligations of credit purchasers,
- a credit servicer fails to comply with the legal requirements concerning the holding of funds,
- a credit purchaser or credit servicer fails to comply with the legal framework governing relations with borrowers.
The Bank of Greece may impose fines for multiple breaches. The breaches for which it imposes fines are in addition to the obligations set out in Article 15 of the bill under consideration. The latter provides for fines of €50,000 to €500,000 per borrower, imposed by the General Secretariat for the Financial Sector and Private Debt Management, in cases where collection action is taken against a borrower in good standing or a borrower who misses some instalments because the creditor or credit servicer has not provided the necessary information.