When Does Credit Stop Being Finance? Debt Collection before the CJEU

 

Cătălin Gabriel Stănescu, Reader in Law at Newcastle University and member of the European Commission’s Financial Services Users Group.

Photo credit: BNP Paribas HQ, by Boubloub, via Wikimedia Commons

A pending reference from the Greek Council of State brings an old question back before the Court of Justice: when credit is transferred to a purchaser and its administration and recovery are entrusted to a separate company, how should EU financial law classify the activities of that company? In Trapeza tis Ellados II, C-210/26, the Court is asked whether an undertaking engaged exclusively in credit servicing, without assuming credit risk, qualifies as a financial institution under the Regulation (EU) No 575/2013 on prudential requirements for credit institutions (Capital Requirements Regulation, CRR).

In a 2021 article,  I asked whether informal debt collection qualified as a financial service under EU law and what that qualification would mean from a legal perspective (pp 535-538). The answer was less straightforward than the question suggested. Treating collection as a financial service might activate additional protection for those subjected to it, but it might also make that protection depend on the origin of the debt. The difficulty itself was older: my 2015 analysis of MKG-Kraftfahrzeuge-Factoring had already shown how factoring, debt purchasing and collection could overlap without becoming identical.

Two recent CJEU judgments make the pending reference particularly interesting. In Kosmiro, the Court describes debt collection, for VAT purposes, as financial transactions designed to obtain payment (para 50). In IFIS NPL INVESTING, it excludes the purchase or management of non-performing loans from the economic activities covered by a particular definition of financial institution (para 37). The reference in Trapeza II concerns a servicer whose activities include administering and collecting debts, negotiating with borrowers and restructuring repayment obligations. The question is not simply whether these judgments can be reconciled, but how far a classification reached under one EU regulatory regime can be carried over into another. I argue that regulatory differentiation does not require conceptual separation. Lending, assignment, servicing and collection may attract different legal classifications while remaining connected stages in the life of the same credit relationship.

1.     The question in Trapeza II

The reference in Trapeza II was lodged by the Greek Council of State on 13 March 2026 and is currently pending. It arises from sanctions imposed by the Bank of Greece on the former managing director of a credit-servicing company (summary of the request, paras 6-8). The company was authorised and supervised by the Bank but operated exclusively as a servicer. Its activities included legal and accounting monitoring, recovery, negotiations with debtors, settlements and debt restructuring (paras 14-15). It assumed no credit risk (para 29).

The question is whether such a company is a “financial institution” under Article 4(1)(26) of CRR. The definition applicable at the material time covered an undertaking, other than an institution or pure industrial holding company, whose principal activity was acquiring holdings or pursuing one or more activities listed in points 2-12 and 15 of Annex I to Directive 2013/36/EU on access to the activity of credit institutions and the prudential supervision of credit institutions (Capital Requirements Directive, CRD). The dispute turns on two possible Annex I classifications: point 2, ‘lending’, which expressly includes factoring with or without recourse, and point 11, ‘portfolio management and advice’.

The Bank of Greece characterises the work as administrative factoring and, where securitised loans are concerned, portfolio management (summary of the request, para 10). The referring court provisionally rejects both propositions. That conclusion forms part of a broader line of reasoning. Drawing on Lineas – Concessões de Transportes and Others, joined Cases C-207/22, C-267/22 and C-290/22, judgment of 26 October 2023, the referring court starts from the proposition that an undertaking which does not carry out activities in the financial sector cannot qualify as a financial institution (para 23). It then reads the Annex I activities as, in principle, activities linked to the banking or financial sector. It invokes Directive (EU) 2021/2167 on credit servicers and credit purchasers as confirmation, in its view, that credit servicers are not financial institutions within the meaning of the CRR and do not simultaneously carry out activities in the financial sector (para 27). It ultimately concludes that companies performing only the specified servicing activities, without assuming credit risk, ‘do not carry out activities in the banking or financial services sectors’ (para 29). The classification is of immediate importance because it determines whether the sanctions applicable to financial institutions could be used against the applicant. The reference nevertheless raises a broader issue: how EU financial law classifies an undertaking that performs functions arising from a credit relationship while neither originating the credit nor assuming the associated credit risk.

There is also a temporal limit. Regulation (EU) 2024/1623 (CRR III) amended that definition with effect from 1 January 2025. The current Article 4(1)(26) also expressly includes an “ancillary services undertaking” as an alternative basis for classification as a financial institution. Article 4(1)(18), as amended, defines such an undertaking by reference to a principal activity consisting, inter alia, of a direct extension of banking or other activities ancillary to banking. That express route to financial-institution status was absent from the version of Article 4(1)(26) applicable to the dispute. The judgment will therefore interpret a superseded definition. Its reasoning on factoring, portfolio management and credit servicing may nevertheless remain relevant under current law, even though the amended definition now provides an additional route to financial-institution status.

2.     Factoring as debt collection

Kosmiro, C-232/24, judgment of 23 October 2025, concerned two factoring models. Under trade factoring, the factor purchased invoices and assumed the debtors’ default risk. Under invoice factoring, the debts remained with the client, which retained the default risk while obtaining finance secured by those debts. In both arrangements, the factor administered and collected the debts (paras 11-13). The VAT question was whether the relevant fees constituted consideration for exempt credit or taxable debt collection under Article 135(1)(b) and (d) of Directive 2006/112/EC on the common system of value added tax (VAT Directive).

The Court began from the debt-collection exception to the exemption for transactions concerning debts. Exemptions are interpreted strictly, while the exception, which restores taxation, is interpreted broadly (paras 46, 49). Debt collection refers to “financial transactions designed to obtain payment of a pecuniary debt” (para 50). That concept encompasses both factoring models (paras 51-53).

That conclusion builds on an established line of VAT-related activities case law. In MKG-Kraftfahrzeuge-Factoring, C-305/01, judgment of 26 June 2003, the Court held that factoring is merely a variant of the more general concept of debt collection, whatever the manner in which it is carried out (paras 76-77). In AXA UK, C-175/09, judgment of 28 October 2010, it added that debt collection need not concern an overdue debt or involve coercion (paras 31-35). The resulting VAT concept is therefore not confined to coercive recovery of debts already in default.

In Kosmiro, the Court held that, in principle, factoring constitutes a single economic transaction whose main purpose is to transfer responsibility for recovery and collection from the client to the factor and splitting that transaction would be artificial (para 60). In trade factoring, the funds paid for the purchased debts were not a loan to the client and there was consequently no credit relationship between factor and client (para 61). In invoice factoring, by contrast, financing was provided, but not independently of the debt-collection service, of which it was the corollary (paras 62-63). The Court distinguished arrangements whose essential purpose was independently the provision of financing (paras 64-66). Importantly, it rejected the argument that all financing arrangements must receive the same VAT treatment: the legislative distinction between debt collection and the granting of credit permits “financing arrangements subject to VAT and financing arrangements exempt from VAT” to coexist (para 67). The relevant invoice-factoring fees therefore constituted consideration for a single and indivisible debt-collection service subject to VAT (paras 68-69). 

There are firm limits. The Court classifies the transactions for VAT purposes but does not define the institutional perimeter of prudential supervision. It establishes that factoring falls within debt collection, not that every collector performs factoring. Nor does the debtor purchase the service examined in Kosmiro: the factor supplies it to the creditor-client. Finally, purchasing debts need not supply a remunerated service at all. In GFKL Financial Services, C-93/10, judgment of 27 October 2011, a price reflecting the actual economic value of defaulted claims was not consideration for a service to the seller (paras 22-26).

Kosmiro consequently provides no trans-substantive definition of financial services. Its narrower significance is nevertheless important. EU VAT law describes debt collection as consisting of financial transactions designed to obtain payment of a pecuniary debt, and Kosmiro demonstrates that financing and collection can form part of the same economic arrangement without becoming identical legal services. What it undermines is therefore any assumption that the functions of financing and collection must always be legally or economically separate.

3.     The classification puzzle

The difficulty is that the Court has recently used a different regulatory definition to reach a conclusion that appears to leave little room for treating the purchase or management of non-performing loans as a financial activity. In IFIS NPL INVESTING, C-65/25, judgment of 11 June 2026, the Court stated that the economic activities covered by Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (Fourth Anti-Money Laundering Directive, AMLD) do not include the purchase or management of non-performing loans (para 37). The conclusion is relevant for Trapeza II because the Greek undertaking did not purchase the claims it serviced, but its activities included their administration, collection, negotiation and restructuring. The question is whether the exclusion of NPL “management” in IFIS also encompasses those distinct servicing functions.

IFIS arose from Italian legislation governing bulk assignments of non-performing loans during the period before the expiry of the deadline for transposing Directive 2021/2167. The referring court asked, among other things, whether entities carrying out such assignments had to be subject to anti-money-laundering supervision.

In this instance, the definition before the Court was Article 3(2)(a) of AMLD, not Article 4(1)(26) CRR. It covered an undertaking other than a credit institution which carried out one or more activities listed in points 2-12, 14 and 15 of CRD Annex I. That statutory route nevertheless matters for Trapeza II because it incorporates the two Annex I activities at issue there: point 2, which includes factoring, and point 11, portfolio management and advice. Yet the Court does not analyse either Annex I activity separately. Its unqualified exclusion of NPL purchase and management consequently raises the question whether either activity can bring an undertaking within the corresponding CRR definition.

That passage is difficult to confine to its facts. Unlike the historical CRR definition, the AMLD did not require an Annex I activity to constitute the undertaking’s principal activity. If the purchase or management of NPLs does not fall within the relevant Annex I activities at all, making that activity the undertaking’s principal business cannot by itself bring it within the CRR definition. IFIS therefore points strongly towards exclusion if the Greek servicer’s work is characterised simply as the management of NPLs.

IFIS bears directly on Trapeza II, but does not resolve it. The dispute in IFIS arose from bulk assignments of NPL portfolios, whereas the Greek undertaking in Trapeza II neither acquired the claims it serviced nor assumed their credit risk. Paragraph 37 of the IFIS judgment extends the Court’s conclusion beyond the purchase of NPLs to their “management”, but does not examine what that activity encompasses. In particular, the Court did not consider whether the administration, collection, negotiation and restructuring performed by a credit servicer could constitute factoring under point 2 of Annex I to the CRD, or whether the management of a portfolio of credit claims could fall within “portfolio management and advice” under point 11 of that Annex. Instead, the reasoning moves directly from the scope of the AMLD to the exclusion of NPL purchase and management. The temporal analysis in IFIS does not qualify that conclusion. Paragraphs 31–36 of the judgment explain why Directive 2021/2167 did not apply to the transfers at issue and could not be applied retroactively; paragraph 37 states a separate conclusion concerning the scope of the AMLD. That conclusion must therefore be confronted on its own terms.

The two definitions also perform different functions. The AMLD identifies obliged entities for the purposes of anti-money-laundering supervision, whereas the CRR definition operates within a system of prudential regulation and financial-sector supervision. In Lineas, the Court interpreted the historical CRR definition in that regulatory context. It concluded that an undertaking whose sole activity consisted in acquiring holdings in companies which did not carry out activities in the financial sector was not a “financial institution”. Its reasoning emphasised the distinction drawn by the CRR between holdings in financial-sector entities and holdings outside that sector, and the inconsistency that would result from subjecting the latter to rules designed for the former (paras 69-81).

Those different regulatory purposes matter, but they do not by themselves resolve Trapeza II. Both definitions incorporate points 2 and 11 of the same CRD Annex I. If those common terms produce different classifications in the AMLD and CRR contexts, the difference must be explained through the wording, structure and purpose of the respective regimes. Regulatory purpose alone cannot determine what counts as factoring or portfolio management.

Trapeza II thus offers the Court an opportunity to provide the analysis compressed into paragraph 37 of IFIS. It could explain whether servicing without credit risk can constitute factoring under point 2; what “portfolio management and advice” means in point 11 when the portfolio consists of credit claims; and whether the servicer’s combination of collection, negotiation and restructuring affects either classification. If the result remains exclusion, the reasoning should identify why those activities fall outside the particular definition rather than turn that exclusion into a general proposition that servicing and collection are external to finance.

Consumer law reveals the relevance of that distinction. In Gelvora, C-357/16, judgment of 20 July 2017, the Court held that the concept of commercial practices directly connected with the sale of a product extends beyond the conclusion of the contract to its performance, to include measures taken to obtain payment (paras 19-21). The claims at issue originated in consumer credit, and their recovery could fall within the Unfair Commercial Practices Directive even after assignment to a debt collection agency (paras 22-25). Excluding credit-repayment transactions following assignment could undermine consumer protection by encouraging traders to separate the recovery phase in order to escape the Directive (para 28). The Directive could also apply where unilateral collection measures were pursued in parallel with formal enforcement (paras 29-31).

Gelvora does not classify debt collection as a financial service. Paragraph 25 appears to distinguish the two activities: the collection agency does not provide consumer credit “as such”. Its significance lies instead in the continuity recognised for the particular purposes of consumer protection. Assignment changes the creditor and recovery changes the activity, but neither necessarily breaks the legal connection between collection and the credit from which the payment obligation arose.

INKO, C-127/15, judgment of 8 December 2016, provides a complementary, activity-specific example. Under Directive 2008/48/EC on credit agreements for consumers, a debt collection agency acting on behalf of a lender to conclude a rescheduling agreement for unpaid credit must be categorised as a “credit intermediary” within the meaning of Article 3(f) (paras 42-44). The classification follows not from debt collection alone but from the additional function performed by the agency within the existing credit relationship: concluding the rescheduling agreement on the creditor’s behalf. The Court further held that acting as a credit intermediary only in an ancillary capacity may remove particular pre-contractual information obligations without altering that classification (paras 47-53).

4.     Continuity without regulatory identity

The case law does not produce a single answer to whether collection is a “financial service”. And, perhaps, it should not. Lending creates credit; purchasing transfers a claim; servicing manages rights and obligations arising from it; collection seeks payment; and enforcement invokes legally compulsory procedures. Those functions may overlap, but they are not identical and may justify different authorisation, conduct, prudential and tax rules.

The difficulty begins when a conclusion designed for one of those purposes is detached from it. Under Directive 2021/2167, a credit purchaser does not require authorisation to operate because it acquires existing non-performing credit rather than creating new credit and raises negligible systemic risk (Recital 40). IFIS excludes the purchase or management of NPLs from the economic activities relevant to the AMLD, while Trapeza II asks whether particular servicing functions fall within the historical CRR definition. A particular acquisition of debts may not constitute a remunerated service for VAT purposes. None of those situations establishes, without another legal step, that collection has become external to the financial relationship from which the payment obligation arose.

Directive 2021/2167 embodies this distinction. A credit servicer manages and enforces rights and obligations related to a creditor’s rights under a non-performing credit agreement, or to the agreement itself, on behalf of a credit purchaser. Credit-servicing activities include collecting or recovering payments, specified renegotiation, complaints administration and informing borrowers of changes in interest rates or charges or of payments due (Article 3(8) and (9)(a)-(d)). Rather than simply designating servicers as credit institutions or financial institutions, the Directive subjects them to a bespoke authorisation and supervisory regime (Articles 4-14 and 21-23).

At the same time, the regulatory object remains connected to the underlying credit relationship. Article 10 of Directive 2021/2167 regulates the conduct of purchasers and servicers towards borrowers, requiring good faith, fairness and professionalism and prohibiting harassment, coercion and undue influence. It also requires specified information to be communicated after transfer and always before the first debt collection. The limited prudential concerns associated with credit purchasers do not, however, displace the conduct obligations applicable to them and their servicers. Yet Union and national consumer-protection rules continue to apply and borrowers retain the rights arising from the initial credit agreement. Regulatory identity changes; legal continuity remains.

This also separates different forms of risk. Whether an undertaking assumes the economic loss resulting from non-payment may be highly relevant to prudential classification. It says much less about the conduct risks created by controlling communications with borrowers, repayment negotiations and collection. A servicer’s absence of credit risk may therefore matter to one regulatory classification without establishing that its activities are unrelated to the underlying financial relationship. Undertakings might pose little or no systemic risk, but that does not mean no risk to consumer-debtors. Directive 2021/2167 responds to such conduct risks through authorisation and conduct obligations tailored to servicing rather than lending.

It should be emphasized that the Directive is selective evidence, not a complete solution. Its framework concerns non-performing credit agreements issued by credit institutions established in the Union and contains significant exclusions (Articles 1-2). It does not create a common regime for the collection of rent, utility debts or other non-credit claims. That limitation leaves intact a problem I identified in my earlier work: if protection against abusive collection depends on the regulatory identity of the debt or collector, comparable collection practices may attract different legal responses for reasons having little to do with the risks those practices create.

The answer is not to declare every collector a financial institution, but to resist allowing institutional definitions to determine questions they were not designed to answer. Prudential classification should follow prudential purposes. Consumer-facing collection should remain subject to effective conduct controls because of the activity and its connection to the underlying obligation. Where gaps remain outside the sectoral regime, they require direct regulation rather than conceptual disappearance.

Credit does not stop being finance at a single identifiable moment. Default, assignment and outsourcing redistribute its functions and risks. They may change the applicable service, institution and regulatory regime without erasing the relationship between the claim being collected and the transaction that created it. IFIS requires purpose-specific exclusions to be taken seriously. Kosmiro, Gelvora and INKO require equal caution before turning such an exclusion into a general separation between finance and collection. Trapeza II is an opportunity to articulate both propositions and to clarify a boundary that EU law has so far defined only imperfectly.