New Portuguese Law Protects Homeowners as Regulator Tackles Irregular Mortgage Debt Sales
The Portuguese government has officially enacted new legislation aimed at protecting homeowners whose mortgage debts are sold by banks to third-party investment funds and credit management firms. The announcement follows years of reports from the consumer defense organization, Deco, detailing "painful" and aggressive recovery processes that have left many families in legally precarious situations, in some cases leading to the loss of their homes.
The new law, titled the "Legal Regime for the Assignment and Management of Bank Credits," transposes a European Union directive from 2021. Its primary objective is to establish a clear regulatory framework for the sale and management of non-performing loans, ensuring that consumers retain all their contractual rights after their debt is transferred. The legislation was promulgated by the President of the Republic on August 13, 2025, with implementation expected to begin before the end of the year.
According to Deco, the problem became particularly acute from 2017 onwards, as banks accelerated the sale of non-performing loan portfolios to clean up their balance sheets. Homeowners in default, already in a vulnerable position, would suddenly find their point of contact was no longer a supervised financial institution but an unregulated external company. This change often resulted in the loss of fundamental protections, such as the right to redeem the loan by paying off arrears and resuming monthly installments.
Natália Nunes, coordinator of Deco’s financial protection office, stated that the association has been inundated with consumers who are "surprised" and confused by the process. "They come to us saying the loan is no longer with the bank, but they have no idea what the new entity is or what will happen next," she explained. This lack of transparency and oversight has led to what she describes as "clear violations of their rights."
The new legislation introduces several key compliance requirements for companies that purchase and manage these credits. A central tenet is the "principle of neutrality," which mandates that the sale of the credit cannot weaken the consumer's legal standing. All rights and obligations from the original contract must be upheld by the new creditor. This explicitly includes the right of redemption, a critical tool for homeowners seeking to avoid foreclosure.
Failure to adhere to these new rules will result in penalties, although the specific consequences for non-compliance are still being detailed in supplementary regulations. The Bank of Portugal is expected to play a supervisory role over these newly regulated entities, a significant change from the previous environment where they operated outside its direct purview.
Industry reaction to the legislative changes has been cautiously positive. A representative from the Portuguese Banking Association acknowledged the need for a clearer framework, stating that it would bring "greater legal certainty for all parties." However, some credit management firms have privately expressed concerns that the new compliance burdens could make the acquisition of non-performing loan portfolios less attractive, potentially slowing down the market's ability to resolve bad debt.
Legal professionals have largely welcomed the change. A Lisbon-based lawyer specializing in real estate law commented, "This was a much-needed reform. The legal ambiguity surrounding credit assignments created a Wild West scenario. This law establishes clear rules of engagement and re-empowers the consumer, which is essential for a healthy and transparent credit market."
The government’s rationale for the changes is to align Portugal with European best practices and to provide a robust safety net for consumers facing financial distress. The Minister of Economy stated that the goal is to "ensure that the necessary process of managing non-performing credit does not come at the cost of citizens' fundamental rights."
It is anticipated that related regulations may follow, further detailing the operational standards and reporting obligations for credit management companies. The government has also indicated that it will make resources available to help consumers understand their rights under the new regime, likely through official channels and in partnership with organizations like Deco.
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