Default Prevention and Management

Responsible lending is one of the most important principles of credit institutions conduct.

In addition to the rules to be followed when granting credit, there are also a number of rules, addressed to credit institutions, relating to:

• the monitoring and management of situations of enforcement of credit agreements concluded with bank customers, with a view to preventing default;  
• the settlement of events of default by consumers who prove to be unable to meet their financial commitments to credit institutions, for a wide range of reasons.

These rules apply to most credit agreements signed with consumers (except financial leasing).

Thus, it is envisaged in relation to the prevention of default that credit institutions shall have drawn up Default Risk Action Plans (PARI), to be made available to their employees, which shall describe in detail the procedures that, on the one hand, enable the early detection of signs of default risk and the monitoring of consumers reporting difficulties in complying with the obligations arising from such agreements and, on the other hand, which promote the swift adoption of measures likely to prevent such default.

In turn, and under the scope of the Out-of-court procedure for default settlement (PERSI), the bank should assess the one-off or lasting nature of the default registered, assess the financial capacity of the consumer and, where feasible, submit settlement proposals appropriate to the financial situation, objectives and needs of the consumer. During the time under the auspices of PERSI, the bank customer benefits from a set of rights and guarantees in order to enable the settlement of default situations, by agreement with the credit institution granting the credit, avoiding recourse to the courts (e.g. the bank is not allowed to terminate the credit agreement on the grounds of default).

Bank customers who are at risk of default or in arrears with their credit payments can obtain, free of charge, information, advice and follow-up from the entities that form part of the Indebted Consumer Support Network (RACE).

Banco de Portugal publishes on the Banking Customer Portal (Prevention of default/Management of default) fundamental information, legal and regulatory rules applicable to events of default in credit agreements, including the understandings published for their application by credit institutions. The information disclosed is backed by a description of the applicable legal scheme, aiming to raise bank customers’ awareness of the same.

This subject is also described on the Todos Contam Portal of the National Financial Training Plan, in the content concerning family budget planning. Information on this subject can also be consulted on the Consumer Portal of the Directorate General for Consumers.

In 2021, the Portuguese Banking Association released the paper “Good practices in the relationship of banks with individuals in financial distress” that summarizes the practices banks adopt when dealing with customers facing such difficulties, in order to provide them adequate treatment and assistance.