Penalties for loansharking: criminal and civil consequences

French legislation strictly regulates the cost of credit. It protects borrowers against excessive interest rates by means of a comprehensive repressive system, in particular with regard towear and tear.

A loan becomes usurious when its total effective rate (TEG) exceeds the average rate charged by credit institutions for similar transactions by more than one third. This threshold varies according to the category of loan and is published quarterly in the Journal Officiel.

Criminal penalties

Who is affected

Criminal penalties are not applied uniformly. The Economic Initiative Act of 1 August 2003, supplemented by the SME Act of 2 August 2005, decriminalised usury:

• Legal entities with an industrial, commercial, craft, agricultural or non-commercial professional activity
• Individuals acting for business purposes

Criminal penalties therefore apply only to:

• Usurious loans granted to private individuals not acting for business purposes
• Loans to legal entities not in business

This distinction reflects the legislator's desire to provide greater protection for non-professional borrowers.

Constituent elements and quantum of penalties

Article L. 341-50 of the French Consumer Code punishes:

• Anyone who makes a usurious loan
• Or knowingly assists in obtaining such a loan

The penalty is two years' imprisonment and a fine of €300,000.

The court may also order:

• Publication of its decision
• Temporary or permanent closure of the company involved
• Prohibition from carrying on the professional activity concerned for a maximum of 5 years

The offence of usury requires two elements:

1. The material element: the judge must find that the TEG actually exceeds the reference rate at the date of the loan.
2. The moral element: the intention to offer a loan at a usurious rate must be proven.

Without proven intent, no conviction is possible. For example, a branch manager who grants a loan according to a scale calculated automatically by a computer system will not be convicted in the absence of personal intent.

Limitation period on public action

The limitation period for the offence of usury is 6 years, in accordance with article 8 of the Code of Criminal Procedure.

This period runs from the date of the last payment of interest or capital (article L. 341-48 of the French Consumer Code). Usury is therefore a continuing offence.

Please note: the recovery of sums in execution of a court order is not considered to be collection within the meaning of this article.

Civil penalties

For loans to individuals

A usurious rate does not invalidate the loan. This solution protects the borrower, who would otherwise be required to repay the capital immediately.

Article L. 341-48 of the French Consumer Code states that:

• Amounts wrongly received by the lender must be returned
• These sums are deducted first from the interest legitimately due
• Then, in the alternative, on the capital of the claim

If the claim is extinguished (capital and interest repaid), the sums wrongly received are refunded with statutory interest from the day they were paid.

This penalty may be combined with that applicable in the event of failure to comply with article 1907 of the Civil Code (absence of a written stipulation of the interest rate), which is punishable by forfeiture of the right to interest.

The presence of a guarantor changes nothing. The guarantor or the real guarantor cannot escape his commitment simply because the loan was usurious. The guarantee remains valid.

For overdrafts to professionals

Article L. 313-5-2 of the French Monetary and Financial Code stipulates that overdrafts granted to legal entities carrying on a professional activity and to natural persons acting in a professional capacity are subject to the following conditions:

• Excessive collections are automatically deducted from the contractual interest.
• In the alternative, on the capital of the claim
• Where appropriate, restitution is required

Administrative penalties

The Autorité de contrôle prudentiel et de résolution (ACPR) has a graduated range of sanctions, from warnings to withdrawal of authorisation (article L. 612-39 of the Monetary and Financial Code).

In practice, the ACPR proceeds in stages:

1. Request for explanations from management
2. Warning against continuing the practices in question
3. Formal notice to take corrective measures within a specified period
4. Tougher penalties for persistent offences

Possible accumulation of penalties

Criminal penalties (imprisonment and fine) may be combined. Article L. 341-50 of the French Consumer Code removes the phrase "or one of these two penalties only", making it compulsory to combine these penalties.

Civil and criminal penalties are perfectly compatible.

Concerning the cumulation of penalties for non-compliance with usury thresholds with those relating to TEG/TAEG missing or incorrect:

• Criminal penalties may be accumulated up to the highest legal maximum (article 132-3 of the French Criminal Code).
• Civil penalties are not cumulative when they are incompatible (it is impossible to be deprived of the right to contractual interest and to be forced to return only the sums collected in excess of the usury threshold).

How to defend yourself against loan-sharking

Do you suspect you've taken out a loan against your will? Here are the steps you need to take:

1. Check the TEG of your contract and compare it with the usury rate applicable at the time of signing. These rates can be consulted on the Banque de France website.
2. Calculate the real TEG precisely including all the costs associated with the loan (application fees, commission, compulsory insurance). This requires technical skills - a specialist lawyer can help you establish whether your loan is indeed usurious.
3. Gather all the evidence you need: loan contract, account statements, payment schedules, correspondence with the lending institution.
4. Seek amicable redress before taking any legal action. Send a registered letter with acknowledgement of receipt to the lending institution requesting that the situation be rectified.
5. If you do not receive a satisfactory response, contact the Banking Ombudsman.
6. If mediation fails, consult a lawyer to consider legal action.

The intervention of a specialist lawyer often proves decisive for:

• Technical analysis of the TEG applied
• Determining whether the statute of limitations has expired
• Choosing the best litigation strategy
• Precisely quantify the sums to be returned

Disputes relating to usury require specialist expertise in banking law. Lending institutions have seasoned legal teams - don't go it alone.

Sources

• Consumer Code: articles L. 314-6 to L. 314-9, L. 341-48 to L. 341-51 and D. 314-15 to D. 314-17
• Monetary and Financial Code: articles L. 313-5, L. 313-5-1, L. 313-5-2, L. 612-30, L. 612-31 and L. 612-39
• Penal Code: articles 131-27, 131-35 and 132-3
• Code of Criminal Procedure: article 8
• Law no. 2003-721 of 1 August 2003 on economic initiative (article 32)
• Law no. 2005-882 of 2 August 2005 in favour of small and medium-sized enterprises
• Cass. crim., 2 October 2002, no. 01-85.931
• Cass. 1st civ. 22 April 1997, no. 95-13.270
• Cass. com. 11 October 2011, no. 10-14.359