Regulations of the Law for Debt Relief to Workers

Purpose This Regulation has the purpose of regulating the provisions contained in the Law on Debt Relief for Workers, approved by the National Congress through Legislative Decree No. 118-2019 of November 4, 2019, published in the Official Journal La Gaceta on November 8, 2019.

Scope of Application The provisions established in this Regulation shall apply to debt consolidation operations granted by institutions of the financial system, cooperatives, public welfare institutes and the Private Contribution Regime (RAP), under the protection of the Law on Debt Relief for Workers. The provisions of this Regulation shall also apply to private credit bureaus, private pension fund management companies and insurance institutions, to the extent applicable to them.

Definitions In addition to the definitions indicated in Article 2 of the Law on Debt Relief for Workers, for purposes of this Regulation, the following shall be understood as: 1. High Indebtedness: Level of indebtedness presented by Workers or Retirees derived from obligations contracted with the regulated and unregulated financial sector, as well as with the commercial sector and professional associations, which make their salary or pension insufficient to meet their basic needs. 2. BCH: Central Bank of Honduras. 3. Credit Bureaus: Private Risk Management Centers supervised by the National Banking and Insurance Commission. 4. CIC: Credit Information Center of the National Banking and Insurance Commission. 5. Commission: National Banking and Insurance Commission. 6. CONSUCOOP: National Supervisory Council of Cooperatives. 7. Cooperatives: Savings and Credit Cooperatives. 8. Payroll Deduction: Values deducted by the Employer from the salaries or wages of its Workers or pensions of its Retirees, corresponding to those required by Law or authorized by the Worker. 9. Financial Education: Processes through which financial users and investors improve their understanding of financial products and/or services, concepts and risks through information, instruction and/or advice, develop the skills and confidence to become aware of financial risks and opportunities to make informed decisions, to know where to go for help, and to take other effective actions to improve their financial well-being. 10. Employer or Principal: Juridical person, from the private or public sector, who contracts the services of one or more workers, by virtue of a contract or employment relationship, to whom it pays their salaries or wages through the National Financial System, or any other form of payment. For purposes of this Law, public or private institutions responsible for paying retirement benefits shall also be considered as such. 11. Trust (Fidecomiso): Legal transaction of confidence, by virtue of which entities authorized to operate as trustee are attributed with ownership of certain assets, with the mandatory limitation of performing only those acts required for the fulfillment of such lawful and determined purpose to which they are destined in the contract. The trust implies the transfer of rights or transfer of ownership of assets in favor of the trustee. 12. Beneficiary or Beneficiaries (Fideicomisario): Natural and/or juridical person(s) in whose favor the trust is established, with the necessary capacity to receive benefits derived from the trust, as well as the trust assets remaining upon expiration of the term stipulated in the trust contract. 13. Investment Trust (Fidecomiso de Inversión): That in virtue of which the settlor transfers to the trustee, money or securities for its investment or placement, on any basis, in accordance with written instructions by the settlor to the Trustee directly and in writing, contained in the trust contract, the regulation established for these purposes by an investment committee, or in accordance with the trustee's policy for these effects and that is acceptable to the settlor. 14. Settlor (Fideicomitente): Natural or juridical person(s) who has/have the necessary capacity to make the transfer of assets and/or rights of its property that the trust implies; and the competent judicial or administrative authorities when it is a matter of assets whose custody, conservation, administration, liquidation, distribution or sale corresponds to said authorities or to the persons they designate. 15. Trustee (Fiduciario): Banking institution that is attributed with ownership of certain assets, so that it performs with the same, only those acts required for the fulfillment of the lawful and determined purpose to which they are destined. Only banking entities, savings and loan associations and the Honduran Bank for Production and Housing may act as trustees, in accordance with the provisions of Articles 46 numeral 10) and 58 numeral 13) of the Financial System Law, 5 numerals 5), 6) and 7) of the Law of the Honduran Bank for Production and Housing, and 1040 of the Commercial Code. The trustee may never be designated as beneficiary. 16. Credit History (Historial Crediticio): Data of a natural or juridical person regarding their credit obligations, guarantees, credit rating of the debtor assigned by the lending institution, in accordance with the standards issued by the Commission; as well as other information linked to the present and historical characteristics of their indebtedness and payment behavior, useful for the evaluation of credit risk, within the scope of application of the provisions of Article 26 of the Law. 17. Financial System Institutions: Commercial private banks, public banks and financial companies. 18. Financial Institutions: For purposes of the Law, all those that offer consolidation credit facilities shall be understood as such, including among them financial system institutions, cooperatives, public welfare institutes and the Private Contribution Regime (RAP). 19. Retiree (Jubilado): Natural person retired from work for having completed a certain number of years worked or due to age, who receives periodic remuneration from a public or private institution. 20. Law: Law on Debt Relief for Workers. 21. Payroll (Planilla): Auxiliary accounting document in which the Employer records the salaries or wages paid to its Workers or pensions to its Retirees through a Financial System Institution or Cooperatives. These records may be physical or electronic. 22. Salary or Pension (Salario o Pensión): Sum of money that the Employer pays to the Worker for work performed in accordance with the provisions of the contract or employment relationship, or the income received by persons who have accepted retirement benefits, which is paid through payroll. 23. Consultation System (Sistema de Consulta): Information system for online consultation of Worker and Employer information. 24. Debtor (Deudor): Worker or Retiree subject to debt consolidation granted under the protection of the Law. 25. Worker (Trabajador): Natural person who provides to one or more juridical persons, material, intellectual or both types of services, through the payment of remuneration and by virtue of a contract or employment relationship, receiving said payment through payroll. CHAPTER II OF THE CONDITIONS OF LOANS

Credits Subject to Debt Consolidation All credit obligations that the debtor has in the regulated and unregulated financial sector, as well as with the commercial sector and professional associations, shall be subject to debt consolidation, regardless of the risk category or default status that these obligations have in the credit history reflected in the CIC and/or Credit Bureaus.

Freedom of Choice Debtors may freely select the financial institutions with which to contract the debt consolidation financial product. For these purposes, financial institutions must provide the debtor with information regarding the conditions of the financial product to be contracted, so that the debtor may make a duly informed decision.

Credit Policy and Financing Conditions Financial institutions that grant debt consolidation loans under the protection of the Law must have a differentiated credit policy for this financial product, in which the applicable financing conditions are established, which must be in accordance with market conditions and comply with free competition; as well as seek an improvement in the economic availability of the debtor in relation to their interests. The aforementioned policy must include, among other aspects, the proportionality of the guarantees that may be required of the debtor based on their risk profile and debt amount. The above, in accordance with Articles 1 and 8 of the Law. The financing conditions of debt consolidation loans granted by financial institutions under the protection of the Law must be set forth in the respective credit contract and disclosed to the debtor, in accordance with the current provisions issued by the Commission or CONSUCOOP, regarding transparency.

Categorization of the Debt Consolidation Financial Product Loans granted under this Law shall be classified at the time of their granting as Category I - Good Credits. Subsequently, these credits shall be classified according to the debtor's payment behavior, in the category that corresponds to them according to the criteria established in the current standards issued by the Commission or CONSUCOOP regarding evaluation and classification of the credit portfolio. In compliance with the provisions of Article 26 of the Law, credits that have been canceled by a consolidation operation under the protection of the Law shall be registered in the CIC as "Consolidated Credit Decree No. 118-2019". The debtor's obligations with financial institutions that are not part of the consolidation operation shall continue to be reflected according to the category that corresponds to them. In accordance with the provisions of the second paragraph of Article 4 of the Law, when it comes to debt consolidation loans that include credit card operations in a situation of delinquency or default, Credit Card Issuers that receive payment derived from consolidation operations under the protection of the Law must proceed to cancel the credit card. Furthermore, they may not grant the debtor a new credit card until 2/3 parts of the debt consolidation loan have been paid. The above, in accordance with the provisions of paragraphs nine and ten of Article 33-A of the Credit Cards Law and 36 of the Credit Cards and Financing Regulation.

Classification of Credits Loans granted under the protection of the Law, for purposes of evaluation and classification of the credit portfolio, shall be considered as personal consumer loans, including those credit operations of debt consolidation that incorporate mortgage loans granted prior to the consolidation operation. For purposes of the provisions of Article 12 of the Law, only those that correspond to new loans for the acquisition, expansion, repair, improvement, subdivision or construction of a dwelling for oneself, as well as the purchase of a lot of land for housing shall be considered as housing loans. These may be consolidated with consumer debts and shall be classified as housing loans, whose treatment must be subject to the current standards issued by the Commission or CONSUCOOP regarding evaluation and classification of the portfolio.

Charges for Early Payments Regulated or unregulated financial entities, commercial houses and professional associations may not apply any charge for early payment, on the obligations that the debtor cancels with resources obtained through the debt consolidation loan granted under the protection of the Law, the above in accordance with the provisions of Article 26 of the Law. CHAPTER III OF CONTRACTS AND CREDIT FILES

Minimum Content of Credit Contracts In accordance with the provisions of Article 5 numeral 6) of the Law, the contracts of debt consolidation financial products under the protection of the Law, entered into between financial institutions and the debtor, must contain at a minimum the following: 1. The description of the financial product contracted. 2. The general information of the parties. 3. The duration or term, conditions and procedures for making modifications to the agreed terms and conditions, including non-charging of the early cancellation charge. 4. Detail of the obligations and responsibilities of the parties. 5. Annual nominal interest rate, Total Annual Cost (CAT) and default interest rate, for the latter the date from which it is applicable must be specified, which shall operate on outstanding capital balance. In the case of a variable interest rate, the variable factor, the form of determination and the periodicity of change thereof must be specified. 6. Description of insurance associated with the debt consolidation financial product. 7. Mechanism for collection or payment through payroll deduction. 8. Description of the guarantees that support the fulfillment of the debt consolidation financial product and its execution guidelines. 9. Extrajudicial collection mechanisms to be implemented in case of debtor default, indicating the applicable charges or fees and their calculation basis. 10. Legal actions that the financial institution may take against the debtor, upon failure to comply with the conditions of debt payment, provided for in the contract. Additionally, the following elements shall be considered part of the contract: 1. Cover page that clearly and simply contains a summary of the main characteristics and conditions of the contract, including the amount of the loan, annual interest rates, number of installments, amount of installments, term, method of payment and the default interest rate in case of default, among others; and, 2. Credit amortization schedule, which shall contain the number of scheduled installments, detailing the distribution of each installment (capital and interest). The above, without prejudice to the power that financial institutions have to add clauses to contracts in accordance with their internal credit policies applicable derived from the Law, while also complying with the current legal and regulatory framework regarding transparency and consumer protection. The additional clauses incorporated into the credit contract, under no circumstances may generate unfavorable conditions for debtors.

Minimum Documentation of Credit File The credit file associated with the debt consolidation financial product granted by the financial institution must contain at a minimum the following documentation:

• 1)

  Credit contract:

• 2)

  Certificate of employment with its respective deductions, issued by the Employer. 3. Letter of Commitment signed by the Employer, wherein the Employer commits itself to the financial institution to collect the debt consolidation loan installment through payroll deduction; 4. The express authorization of the debtor for the execution of the guarantees and the deduction of the loan installment through payroll; 5. Sworn Statement signed by the debtor, in which the obligations subject to consolidation are detailed, attaching to it the individual certificates issued by the creditors, in which the balances are detailed; and, 6. Notifications from the Employer and Worker to financial institutions regarding the change of Employer, when applicable. CHAPTER IV OF INSURANCE CONTRACTING

Insurance Contracting Loans granted by financial institutions under the protection of the Law may have the minimum coverages established in the current standards issued by the Commission or CONSUCOOP, regarding insurance contracting, that are applicable to them. These insurance coverages must be proportional to the type of loan.

Guarantees The guarantees that support debt consolidation loans under the protection of the Law must be proportional to the amount of the consolidated debt values and to the risk profile of the debtor, which shall be subject to the supervision of the Commission and CONSUCOOP, as applicable based on the type of institution, in accordance with the provisions of Article 9 of the Law. In those cases in which the debtor considers that the financial institution has requested guarantees not proportional to its debt, the debtor may present its claim to the Commission or CONSUCOOP, as applicable. CHAPTER VI OF THE SYSTEM FOR PROCESSING AND LIQUIDATION OF LOAN PAYMENTS

System for Processing and Liquidation of Debt Consolidation Loan Payments The processing and liquidation of loan payments derived from the Law shall operate through the platforms established for the national payments system, in accordance with the provisions of Article 14 of the Law. The temporary loan payment system, indicated in Article 16 of the Law, shall be subject to the "Operating Standards of the Electronic Payment Transaction Clearing House, ACH PRONTO", currently in effect issued by the Central Bank of Honduras.

Term for Transfer of Deduction Made by Employer to the Financial Institution The Employer must remit to the financial institutions the amount of the loan installment withheld from the debtor, within the first ten (10) calendar days after making the corresponding deduction for debt consolidation loans covered by the Law. CHAPTER VII OF INVESTMENT TRUSTS

Investment Trust Agreement The Investment Trust Agreement referred to in Article 20 of the Law must be constituted with liquid resources and must not have an object or scope different from that provided for in the Law, and must also be subject to the special Laws and regulations applicable to each sector of the institutions supervised by the Commission that constitute the Trust. If, as a result of supervision, the Commission identifies that its object or scope has been perverted, it shall proceed to issue the corresponding instructions to the Trustee and the Settlors. CHAPTER VIII OF THE CONSULTATION SYSTEM FOR THE DEBT RELIEF OR CONSOLIDATION PROGRAM

Consultation System The Commission, in accordance with Article 19 of the Law, shall enable the supervised institutions that provide the debt consolidation financial product under the Law with a consultation system that displays the information provided by the Honduran Institute of Social Security (IHSS) and the Private Contribution Regime (RAP), entities responsible for the consistency of the information provided. The information shall be provided to the Commission under the conditions and electronic communication channels that it establishes, without the necessity that an Information Exchange Agreement exist between the parties.

Notifications The institutions supervised by the Commission covered by the Law, in accordance with Articles 5 numeral 4) and 6 numeral 4) of the Law, must register in the consultation system the notifications they receive from the Employer and/or Worker regarding change of employer or termination of the labor relationship, no later than within five (5) calendar days following receipt of said notification.

Responsibility for Use of Information The institutions supervised by the Commission covered by the Law are responsible for using the information available in the consultation system for the exclusive purposes provided for in the Law and in compliance with the guidelines established by the Commission. CHAPTER IX OF FINANCIAL EDUCATION PROGRAMS

Special Financial Education Programs In accordance with Article 13 of the Law, financial institutions must incorporate into their annual financial education program educational activities related to the debt consolidation credit granted under the Law, through which they promote a culture of sound administration of finances and financial inclusion of Workers, including in-person educational resources, printed and/or virtual materials. Within the topics to be included in the financial education program, the following are detailed: Good use of resources, rights and obligations of the debtor, budgeting, culture of payment, and benefits of the Law. The Honduran Association of Banking Institutions (AHIBA) shall coordinate that the information provided to the debtor be uniform across its affiliated banking institutions. The costs associated with the implementation of the financial education program and campaign shall be assumed by financial institutions, which must provide these activities free of charge to the debtor. Financial institutions must ensure that the debtor has access to information about the financial education program at some point during the validity of the debt consolidation credit granted under the Law. The Commission may require at any time from these institutions reports on the execution of these programs. CHAPTER X OF FINAL PROVISIONS

Information Reports In accordance with Article 7 numeral 4) of the Law, the Commission, in attention to its competencies and legal restrictions regarding bank secrecy and reserved information, shall respond to information requests made by the Secretariat of State in the Offices of Labor and Social Security to financial institutions for the fulfillment of the purposes and objectives that by Law correspond to said entity, and must provide consolidated statistical information corresponding to loans granted by financial institutions under the Law, as well as data related to the industry, sector, or company to which the debtor belongs, as well as the number of debtors covered by the Law. The Commission shall have the power to require CONSUCOOP to provide the information indicated in the preceding paragraph regarding loans granted under the Law by cooperatives. This information must be provided by CONSUCOOP within the deadline established by the Commission.

Information Request Financial institutions that provide debt consolidation credits under the Law must generate a database with information related to the credit obligations paid with the debt consolidation credit, in accordance with Circulars or guidelines issued by the Commission.

Sanctions Infractions committed by financial institutions against the provisions outlined in the Law and in this Regulation shall be imposed by the corresponding regulatory bodies and in accordance with the current regulation issued by each of them in matters of sanctions. In the case of infractions committed by Employers, it shall correspond to the Secretariat of State in the Offices of Labor and Social Security to apply the applicable sanctions according to its scope of competence.

Effective Date This Regulation shall enter into force as of its publication in the Official Gazette La Gaceta. 2. Communicate this Resolution to the Institutions of the Financial System, Insurance Institutions, Private Pension Fund Administrator Societies, Public Social Security Institutes, Private Contribution Regime, National Supervisory Council of Cooperatives and Private Risk Bureaus, for the corresponding legal purposes. 3. Instruct the General Secretariat of this Commission to have published in the Official Gazette La Gaceta the Regulation contained in this Resolution. 4. This Resolution shall enter into force as of its publication in the Official Gazette La Gaceta. ... It is approved unanimously. ...) ETHEL DERAS ENAMORADO, President; JOSÉ ADONIS LAVAIRE FUENTES, Proprietary Commissioner; EVASIO A. ASENCIO, Proprietary Commissioner; MAURA JAQUELINE PORTILLO G., General Secretary". And for the corresponding purposes this instrument is executed in the city of Tegucigalpa, municipality of the Central District, on the eleventh day of the month of November of two thousand nineteen. MAURA JAQUELINE PORTILLO G. General Secretary 13 N. 2019.