Excessive interest rates expose lenders to severe penalties. The anti-usury system is characterised by its dual nature, criminal and civil. In recent years, the legislator has relaxed certain rules, particularly for business loans. For a full understanding of the concept of usurious lending, how it is calculated and the full range of sanctions available, you can consult our dedicated article. This article details the penalties incurred and the major changes to the legal framework.
Criminal penalties for usury
The offence of usury
The offence of usury is committed as soon as the total effective interest rate (TEG) exceeds the legal threshold at the time the credit is taken out. The court must specify the rate and the extent to which it exceeds the average reference rate.
The Court of Cassation has described usury as an "objective, even mathematical" offence. The element of intent plays a limited role, and is often presumed. The lender, especially if he is a professional, cannot plead ignorance of the legal thresholds regularly published in the Journal Officiel.
Since the Order of 1 September 2005, DGCCRF officials have had greater investigative powers to detect usurious behaviour.
The people targeted and the penalties incurred
Article L. 341-50 of the French Consumer Code punishes not only the direct lender but also anyone who "directly or indirectly, in any capacity whatsoever, assists in obtaining or granting a usurious loan".
This wording covers as many parties as possible, such as intermediaries or financial advisers. Each party commits a separate offence and can be prosecuted independently of the main lender.
The penalties are as follows
- Two years' imprisonment
- 300,000 fine
- Possible additional penalties :
- Publication of the decision in the press
- Display
- Temporary or permanent closure of the company
In the event of closure, the court will set the period for which the offender must continue to pay staff wages, up to a maximum of three years.
The statute of limitations
Article L. 341-51 of the French Consumer Code provides for a special limitation period. This runs from the date of the last payment of interest or capital. This rule differs from ordinary law.
The Cour de cassation has clarified that the recovery of sums in execution of a court order cannot be considered as the collection of interest or capital within the meaning of this article. This distinction is important in determining the starting point of the limitation period.
Applicable civil penalties
The principle of excessive rate reduction
The fixing of usurious interest does not entail total cancellation of the contract. This solution would have been disadvantageous for the borrower, who would have had to repay the loan immediately.
The legislator has opted for a more measured sanction: the reduction of the excessive rate. Article L. 341-48 of the Consumer Code provides that excessive charges are automatically deducted from the normal interest due at the time and, subsidiarily, from the principal of the debt.
This charge is made in the following order:
- On interest due but not yet paid
- Interest payable
- If necessary, on the outstanding capital
If the claim has already been extinguished in terms of capital and interest, the sums wrongly received must be returned with statutory interest from the date of payment.
Harmonisation of penalties under the Ordinance of 17 July 2019
Order no. 2019-740 of 17 July 2019 harmonised civil penalties. Prior to this reform, penalties varied according to the type of irregularity:
- Usurious rate: rate reduction
- No written indication of the TEG: nullity of the interest clause and substitution of the legal rate
From now on, if the TEG is not stated or is stated incorrectly, the lender may be deprived of the right to interest "in the proportion determined by the court". This new wording gives the court a discretionary power that takes into account the damage suffered by the borrower.
The Court of Cassation extended this solution to contracts concluded before the Ordinance came into force, in a ruling dated 10 June 2020. In it, the Court stated that "the system of penalties should be standardised" to enable the judge to take account of the seriousness of the breach and the damage suffered.
Recent developments in the legal framework
De-capping certain rates
The Economic Initiative Act of 1 August 2003 marked a turning point in the regulation of usury. Article 7 excluded from the scope of application loans granted to legal entities carrying on an economic activity.
The law of 2 August 2005 extended this exclusion to individuals acting for business purposes. The aim of these reforms was to facilitate access to credit, particularly for start-ups and companies in difficulty.
This move is based on the idea that capping interest rates would act as a brake on the granting of risky but necessary loans. Financial institutions would then be able to adapt their pricing to the real risk represented by the borrower.
The exception of account overdrafts
Despite this move towards liberalisation, the legislator has maintained a framework for account overdrafts, even for business customers. Article L. 313-5-1 of the Consumer Code continues to classify as usurious any overdraft where the TEG exceeds the average effective rate by more than a third.
This exception is explained by the particular vulnerability of the company faced with an urgent need for cash. The legislator wanted to prevent credit institutions from exploiting this situation of weakness by imposing disproportionate rates.
In the case of usurious overdrafts, only civil penalties (restitution of overpayments) apply. Criminal penalties have been abolished for this category, which limits the deterrent effect of the system.
The influence of European law
European law has had a significant influence on our regulations. Two decrees of 10 June 2002 transposed a European directive introducing the concept of the annual percentage rate of charge (APR).
This APR, based on a calculation method known as "equivalence", applies to consumer credit and home loans. Unlike the traditional TEG calculated using the proportional method, the TAEG takes account of the capitalisation of interest.
The consumer credit directive, transposed by the law of 1 July 2010, also introduced the concept of the "borrowing rate". This rate, which is distinct from the APR, must also be included in the offer of credit to improve the information provided to borrowers.
These developments reflect the tension between two objectives: to protect borrowers from abuse and to allow sufficient access to credit to finance the economy. The legislator is attempting to reconcile these sometimes contradictory imperatives.
Need advice on usury rates?
Despite recent simplifications, usury regulations remain complex. Its proper application requires precise technical and legal analysis.
Our firm can help you, whether you are a borrower faced with potentially abusive rates or a lender concerned about compliance. Contact us for a personalised assessment of your situation.
Sources
- Consumer Code, articles L. 314-1 to L. 314-9, L. 341-48 to L. 341-51
- Law no. 2003-721 of 1 August 2003 on economic initiative
- Law no. 2005-882 of 2 August 2005 in favour of small and medium-sized enterprises
- Order no. 2019-740 of 17 July 2019 on civil penalties applicable in the event of failure or error in the overall effective rate
EN 
FR