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A financial transaction can quickly fall into the trap of excessive rates. In addition to TEG (Taux Effectif Global)Under French law, usury constitutes a legal bulwark against abuse by lenders. But what exactly does this concept mean in French law? When does a rate become usurious? Who can claim usury?
Legal definition of wear and tear
Article L.314-6 of the French Consumer Code defines a usurious loan as "a loan granted to a person who overall effective rate which exceeds, at the time it is granted, by more than one third, the average effective rate charged during the previous quarter by credit institutions and finance companies for transactions of the same nature involving similar risks".
In other words, for a loan to be considered usurious, its rate must be one-third higher than the average rate for similar loans. This threshold is known as the "usury rate".
A usurious loan necessarily involves a conventional interest-bearing loan. This rule therefore does not apply to issues of debt securities.
Setting wear limits
The role of the Banque de France
Every quarter, the Banque de France conducts a survey of credit institutions and finance companies. It collects data on the average effective rates charged for different categories of loans.
These average rates are then used as a reference for calculating usury rates for the following quarter. The calculation is based on a simple arithmetic average of the overall effective rates observed.
Certain specific loans are not included in this calculation:
- Regulated loans
- Managed loans
- State-subsidised loans
For businesses, loans in excess of certain amounts defined by ministerial decree are also excluded from the calculation.
Since 1 February 2023, the calculation of usury has been monthly rather than quarterly. This measure, initially planned for 6 months, has been extended until 31 January 2024. From that date, the quarterly system should be reinstated.
Informing financial players and the public
The usury rates are published in the Official Journal via a ministerial notice at the end of each quarter. They come into effect on the first day of the following quarter.
The French Consumer Code (article L.314-8) provides for the possibility of transitional measures in the event of exceptional variations in the cost of credit institutions' resources or changes in the definition of loan categories.
Categories of loans concerned
The regulations distinguish several categories of loans to determine the applicable usury thresholds.
Home loans and building work
There are three sub-categories for home loans or loans over €75,000 to finance building work:
- Fixed-rate loans
- Variable-rate loans
- Bridging loans
Since 2016, fixed-rate loans have been divided into three bands according to their duration:
- Less than 10 years old
- From 10 to less than 20 years old
- 20 years and over
Consumer credit
Consumer credit is categorised solely by amount:
- Loans of up to €3,000
- Loans over €3,000 and under €6,000
- Loans over €6,000
Loans to businesses and other legal entities
This category includes :
- Account overdrafts granted to natural persons acting for their professional needs and to legal entities with a professional activity
- Loans to non-business legal entities, with several sub-categories (instalment loans, variable-rate loans, fixed-rate loans, overdrafts, etc.).
People protected by the anti-wear device
Protection against wear and tear does not apply uniformly to all borrowers.
The following are fully protected:
- Individuals not acting for business purposes
- Legal entities not engaged in a professional activity
For natural persons acting for business purposes and legal entities carrying on a business, protection is limited to account overdrafts.
Decriminalisation for certain categories of borrower
The Economic Initiative Act of 1 August 2003 decriminalised usury for legal entities carrying on a professional activity. The law of 2 August 2005 in favour of SMEs extended this decriminalisation to natural persons acting for their professional needs.
The penal sanctions continue to apply to usurious loans granted to private individuals and legal entities without a professional activity.
Article L.341-50 of the French Consumer Code provides for a prison sentence of 2 years and a fine of 300,000 euros for anyone who makes or knowingly assists in making a usurious loan.
In civil law, a usurious interest rate does not render the loan null and void. The borrower may obtain restitution of the sums wrongly received by the lender, which are deducted first from the legitimate interest and then from the capital.
These consequences of wear and tear should be distinguished from specific penalties applicable in the event of an error or omission in the TEGwhich may be cumulative.
How to spot loan sharking and act accordingly
To determine whether a loan is usurious, compare its TEG with the usury rate applicable to its category at the time it was taken out. This comparison requires particular attention to the dates: whether a loan is usurious can only be assessed at the date the loan was taken out.
A rate that falls below the usury threshold after the contract has been signed remains legal. Conversely, a rate that exceeds the threshold after the contract has been signed is not considered usurious.
The statute of limitations for the offence of usury has been 6 years since the law of 27 February 2017. This period runs from the last time either interest or capital is received.
If there is any doubt about whether a loan is usurious, a detailed analysis is required. Factors to consider include :
- The exact date on which the loan was taken out
- The usury rate applicable on that date for the category concerned
- Detailed calculation of the TEG including all compulsory charges
Identifying a loan sharking scheme requires technical skills in banking and a thorough knowledge of recent case law. An ill-prepared approach risks being rejected by the courts.
Do you think you've been the victim of a loan sharking scheme? A legal consultation with a specialist lawyer will quickly establish your rights and the steps you need to take. This initial exchange could save you thousands of euros.
Sources
- Consumer Code, articles L.314-1 to L.314-9, L.341-48 to L.341-51
- Monetary and Financial Code, articles L.313-4, L.313-5, L.313-5-1, L.313-5-2
- Order of 26 September 2016 on the calculation of the usury rate
- Order of 27 June 2023 on applicable usury rates
- 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
- Cass. 1st civ., 1st March 2023, no. 31-17.018
- Cass. com., 15 Feb. 2023, no. 21-10.950
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