Response to consultation paper amending Guidelines on definition of default
8. Question 8. Do you agree with the other changes to the guidelines to reflect updates from Regulation (EU) 2024/1623?
Leasing providers are impacted by the definition of default. This is because leasing companies provide services with specific characteristics that differentiate them from traditional bank lending. This significant impact leads to artificial high Non-Performing Exposures (NPE) rates that are not triggered by financial problems but due to the way the counting of the days are defined in the final guidelines as well as the way the obligors make their monthly payments.
Leasing similar to factoring
As described in our response there are many similarities with factoring receivables, like not treated as a funding obligation, varying invoices and lengthy internal verification process with risks of operational delays.
This issue can be fixed if leasing is treated similarly to factoring where the backstop rule of the 90 days-past due counter is triggered but none of the individual lease obligations of a debtor is past due for more than 90 days.
Leaseurope Proposals
- Proposal to treat leasing similarly to factoring
Delayed payments within leasing are not uncommon and have both a technical and an operational nature. Based on our experience, we estimate that 90 days should be sufficient to absorb the administrative delays in payment of lease obligations. Therefore, we request the EBA to treat leasing in the same manner as factoring for the days past due.
The Original EBA Guidelines 2017 are to be amended as follows:
23 (d) in the specific case of leasing or factoring arrangements where the purchased receivables are recorded on the balance sheet of the institution and the materiality threshold set by the competent authority in accordance with point (d) of Article 178(2) of Regulation (EU) No 575/2013 is breached but none of the receivables to the obligor is past due more than 90 days.
- Proposed amendment (Delete reference to independent internal auditor)
Paragraph 19 b) in the specific case of leasing, there is disagreement regarding the object of the contract or the amount of the final payment of a leasing contract when the leased object is returned;
or alternatively:
Paragraph 19 b) in the specific case of leasing, to prove the client complaint on a commercial disagreement of an invoice, an internal audit trail is enough which can be expressed through voice, mail or other means.