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COVID 19. Moratorium on credit agreements with bank customers entered into force

On 27 March 2020 Decree Law No 10 J/2020 of 26 March 2020 entered into force, establishing extraordinary measures to protect bank customers in view of the current public health emergency, with regard to the fulfilment of obligations arising from credit agreements. 

The moratorium regime established by this Decree Law provides for an extension to be applied – for a period equal to the duration of this measure – to credit agreements with principal to be paid at the end of the contract and in effect on the date of entry into force of the Decree-Law. This extension also applies, under the same terms, to all related elements, including interest, collateral, including those provided through insurance or securities. In respect of credit agreements with partial repayment of principal or partial maturity of other monetary sums, this Decree-Law also provides for a suspension – for the period in which the measure is in effect – of the payment of principal, income and interest with maturity scheduled until the end of that period. The contractual plan for the partial payment of principal, income, interest, fees and other charges is automatically extended for a period identical to that of the suspension.

Additionally, Decree Law No 10 J/2020 prohibits the revocation of contracted credit lines, as well as the extension or suspension of the payment of credits.

The extension of the payment period for principal, interest, fees and other charges related to credit agreements covered by the measure does not result in contractual non-compliance or the application of early maturity clauses. 

Interest due during the moratorium period will be capitalised in the amount of the loan with reference to the time when it is due at the contractual rate in force, unless the bank customer has requested that only the principal repayments be suspended. 

During the moratorium period, any collateral provided by the bank customer or any third parties remain valid and effective, being extended for an equal period.

This regime applies to credit agreements entered into by firms, sole proprietors, private social solidarity institutions, non profit associations and other entities from the social economy. For consumers, the moratorium applies to credit agreements for the purchase of permanent residence.

The following individuals or entities may benefit from the moratorium regimea:

  • Consumers who, cumulatively:
  1. have residence in Portugal;
  2. are under one of the following circumstances:
    1. they are either in preventive or sickness isolation or providing assistance to children or grandchildren, as described in Decree Law No 10 A/2020 of 13 March 2020;
    2. they were subject to a reduction of the normal working period or their employment contract was suspended;
    3. they are unemployed and enrolled at the Portuguese Institute for Employment and Vocational Training;
    4. they are workers eligible for benefiting from extraordinary support to the reduction of the economic activity of self-employed workers;
    5. they are workers of entities whose business establishment or activity has been ordered to be closed during the declared state of emergency;
  3. on 18 March 2020, were not:
    1. in arrears or default of credit agreements for more than 90 days (or, in the event that they were, do not meet the materiality criterion provided for in Banco de Portugal Notice No 2/2019 and in Regulation (EU) No 2018/1845 of the European Central Bank of 21 November 2018);
    2. in a situation of insolvency, suspension or assignment of payments;
    3. being subject to any judicial enforcement proceedings by any institution with which they have entered into credit agreements;
  4. are not in default in payment to the Tax and Customs Authority and the Social Security. Any debts incurred in March 2020 are not considered for this purpose until 30 April 2020.
  • Firms, sole proprietors, private social solidarity institutions, non-profit associations and other entities from the social economy which:
    1. have their business address or head office in Portugal and, in the case of firms, carry out their economic activity in the country;
    2. on 18 March 2020, were not:
      1. in arrears or default of credit agreements for more than 90 days (or, in the event that they were, do not meet the materiality criterion provided for in Banco de Portugal Notice No 2/2019 and in Regulation (EU) No 2018/1845 of the European Central Bank of 21 November 2018);
      2. in a situation of insolvency, suspension or assignment of payments;
      3. being subject to any judicial enforcement proceedings by any institution with which they have entered into credit agreements;
    3. are not in default in payment to the Tax and Customs Authority and the Social Security. Any debts incurred in March 2020 are not considered for this purpose until 30 April 2020.

    To benefit from these support measures, bank customers who meet these eligibility conditions must send the relevant lending institution a statement with their intention to benefit from the moratorium.

    This statement must be accompanied by documents certifying that all customer’s obligations with the Tax Authority and the Social Security have been duly fulfilled.

    For consumers and sole proprietors, the statement must be signed by the borrowers. For firms and private social solidarity institutions, the statement must be signed by their legal representatives.

    If the customer meets the applicable requirements, the institution must apply the moratorium within a maximum period of 5 working days after receiving the statement and supporting documents, with effect from the date of receipt of the statement. If the customer does not meet the eligibility conditions, the institution is required to inform such ineligibility to the customer within 3 working days, by means of a communication sent by the same means that was used to send the statement.

    The moratorium will be in force until 30 September 2020.