Out-of-Court Debt Settlement Mechanism
Two significant measures aimed at strengthening borrower protection are being introduced as part of proposed legislation concerning private debt and the operation of credit servicing companies (servicers).
The new provisions aim to reduce debt repayment costs, provide greater financial predictability for debtors, and strengthen the supervision of loan servicing companies.
1. Fixed 3% Interest Rate Under the Out-of-Court Debt Settlement Mechanism
The first major change involves introducing a fixed annual interest rate of 3% throughout the entire repayment period for debts owed to financial institutions and regulated through the Out-of-Court Debt Settlement Mechanism.
This measure applies to two categories of debtors:
- Vulnerable debtors who hold the relevant official certification.
- Eligible debtors who meet the criteria established under Law 4738/2020, including a significant proportion of middle-income households.
The fixed 3% interest rate will apply regardless of whether the debts are secured by collateral and will constitute a mandatory term of the debt restructuring agreement.
Under the previous framework, following the initial three-year period, the interest rate could become variable, linked to the three-month Euribor plus an additional margin.
The new provision offers greater financial security and predictability, protecting debtors against potential future increases in interest rates.
The new measure will apply to payments made from December 1, 2026.
What Are the Financial Benefits?
For example, for a debt of €100,000 with a repayment period of 20 years, maintaining a fixed interest rate of 3% throughout the entire repayment period is expected to reduce the overall cost of debt servicing.
2. Tenfold Increase in Maximum Fines for Loan Servicers
The second measure focuses on strengthening the regulatory supervision of credit servicing companies (servicers).
More specifically, the maximum fine that the Bank of Greece may impose for violations of the applicable regulatory framework will increase from €500,000 to €5,000,000.
This increase aims to strengthen accountability among loan servicing companies and provide more effective protection of borrowers’ rights.
Violations may include, among other things:
- Improper handling of borrower complaints.
- Inadequate protection of personal data.
- Failure to comply with obligations to inform borrowers.
- Non-compliance with the rules governing relationships between loan servicers and debtors.
What Do These Changes Mean for Borrowers?
These two measures represent significant developments in private debt management.
On the one hand, the fixed 3% interest rate creates more favorable and predictable repayment conditions for eligible categories of debtors.
On the other hand, the increase in maximum fines strengthens the regulatory framework designed to protect borrowers against violations committed by credit servicing companies.
Interested debtors should familiarize themselves with the eligibility criteria and the opportunities offered by the Out-of-Court Debt Settlement Mechanism to assess their available debt restructuring options in a timely manner.
Access to accurate information and an early assessment of each debtor’s financial situation are essential steps toward effective private debt management.
