Regulations on usury protect borrowers against excessive interest rates, a practice as old as credit itself. For individuals and businesses alike, a loan is a structural commitment, but its terms and conditions can sometimes conceal costs that exceed legal thresholds. Navigating the intricacies of credit law, and particularly usury law, is a complex exercise. The purpose of this article is to provide you with an overview of French legislation, covering its founding principles, scope, calculation mechanisms and penalties. Each of these aspects, covered in greater detail in our dedicated articles, is essential to understanding and defending your rights. If you have any doubts about the compliance of your contract, the assistance of a lawyer specialised in credit law is a prudent approach.
Understanding usury: definition and historical development
What is usury? A legal definition
Usury is defined as granting a loan at an interest rate that exceeds a ceiling set by law, known as the usury threshold. In legal terms, it is a form of contractual injustice that cannot be compared to a simple lesion. Usury is not determined by an imbalance between the benefits, but by comparing the agreed interest rate with an official reference rate. This mechanism is designed to protect the debtor from exploitation of his situation of need by the lender.
Historical overview of the fight against usury in France
The prohibition of excessive interest has its roots in antiquity. In Rome, the Law of the XII Tables already set a limit. In the Middle Ages, under the influence of canon law, which considered interest-bearing loans to be a sin, the prohibition was almost total, as time belonged only to God and could not be sold. The French Revolution, with the decree of October 1789, liberalised interest-bearing loans, a principle taken up by the Civil Code. However, this freedom was soon curtailed by a law passed in 1807, which introduced a maximum rate and made usury an offence.
The main stages of contemporary regulation (1966 Act, European law, removal of ceiling)
Modern regulations on usury stem mainly from the law of 28 December 1966. This seminal piece of legislation introduced the concept of the annual percentage rate of charge (APR) to capture the true cost of credit, including interest and all ancillary charges. Legislation then evolved under the influence of European law, which imposed the annual percentage rate of charge (APR) for consumer credit, thus harmonising practices. More recently, the law of 1 August 2003 marked a turning point by removing the ceiling on rates for loans granted to legal entities and individuals acting for business purposes, in order to facilitate their access to credit.
The scope of usury legislation
The rules on usury do not apply uniformly to all financial transactions. Its scope is defined by the nature of the agreements, the status of the borrower and sometimes the place of performance of the contract. For a full exploration of the transactions concerned, you can consult our detailed article on the scope of usury legislation.
Credit agreements subject to regulations
The anti-wear scheme covers a wide range of credit transactions, far beyond simple loan agreements. This includes all forms of cash advances, such as credit lines and overdrafts. Case law has confirmed that the regulations applied equally to credit granted to consumers and to credit granted to professionals prior to the 2003 reform. Instalment sales are also treated as loans and subject to the same rules.
Transactions outside the scope of usury
Certain agreements are excluded from the scope of usury. This is the case for leasing transactions, which combine rental with a promise to sell. The same applies to loans where repayment is uncertain, because it is impossible to distinguish between the remuneration of the risk and that of the interest. Since the Economic Initiative Act of 2003, loans granted to legal entities (companies, associations) and individuals for their business needs are no longer subject to the ceiling, with the notable exception of overdrafts, which remain regulated to protect companies in cash flow difficulties.
The application of anti-wear rules in space
The question of the territorial application of the rules on usury is a complex one, as they come under both civil and criminal law. In criminal matters, French law applies as soon as one of the facts constituting the offence takes place on French territory. For purely civil disputes, international contracts are in principle governed by the law chosen by the parties. However, the regulations on usury are considered to be a mandatory rule, i.e. a provision that must be applied for reasons of public policy, thus overriding the normally applicable foreign law.
The concept of usurious rate: TEG and TAEG
To determine whether a loan is usurious, you need to compare its total cost, represented by the Annual Percentage Rate of Charge (Taux Effectif Global - TEG) or Annual Percentage Rate of Charge (Taux Annuel Effectif Global - TAEG), with the usury threshold published each quarter by the Banque de France. The complexity of these indicators is often at the heart of disputes. Our in-depth analysis of the calculation of TEG and TAEG will provide you with all the technical keys.
Total effective interest rate (TEG): components and calculation method
The TEG has been designed to give a complete picture of the cost of a loan. It is not limited to the nominal interest rate. Under article L. 314-1 of the French Consumer Code, it must include all fees, commissions or remuneration of any kind that are a condition for obtaining the loan. This includes application fees, insurance costs if imposed by the lender, and fees paid to intermediaries. Case law takes a broad view of the costs to be included, including, for example, the subscription of shares imposed by a mutual bank. To find out more about the impact of intermediary remuneration, see our article on IOBSPs and TEG/TAEG.
The annual percentage rate of charge (APR): specific features and European harmonisation
The APR is the European version of the TEG, which is compulsory for consumer credit and home loans. Although its purpose is the same - to reflect the total cost of credit - the method of calculation differs. The APR is calculated using the actuarial "equivalence" method, whereas the TEG for business loans traditionally uses the "proportional" method. This technical distinction, although subtle, has important consequences for the final result and is intended to ensure that credit offers are comparable throughout the European Union.
Penalties for usury under French law
Exceeding the usury threshold is not without consequences. French law has introduced a dual system of penalties, both criminal and civil, to punish this practice and restore the balance of the contract. For a detailed overview of penalties and possible remedies, see our article on penalties for usury is at your disposal.
Criminal sanctions: offences, penalties and procedure
It is an offence of usury to grant a loan to another person at a total effective rate that is more than one-third higher than the average effective rate for the previous quarter. The offence is constituted by the simple mathematical excess, fraudulent intent being most often presumed, especially in the case of a credit professional. The penalties under the Consumer Code can be up to two years' imprisonment and a fine of €300,000. The statute of limitations for prosecution runs from the date on which the last interest or capital payment is received.
Civil penalties: reinstatement and restitution of excessive interest
From a civil point of view, the penalty is not cancellation of the loan, which would be detrimental to the borrower. The law provides for a rebalancing mechanism: excessive sums collected are deducted as of right from the normal interest due and then, in the alternative, from the capital of the debt. If the loan has already been repaid, the sums unduly collected must be returned to the borrower, together with interest at the legal rate from the date of payment. The purpose of this penalty is to deprive the lender of the benefit of the usurious transaction.
How an expert credit lawyer can help you deal with usury
The legislation on usury is technical and its implementation requires a precise analysis of loan agreements and banking practices. A lawyer with a dedicated credit law practice can play a decisive role. The first step is to carry out an audit of your contract to check that the TEG or TAEG is correct. This involves identifying all the charges that should have been included in the calculation and recalculating it in accordance with legal methods. If an error or usurious nature is detected, the lawyer can enter into negotiations with the lending institution to obtain a rectification. If this fails, he will take the case to the relevant courts to assert your rights and obtain the application of civil penalties.
The complexity of the calculation rules and the constant development of case law make professional assistance essential to ensure the security of your actions. If you think you have been the victim of a loan sharking scheme, do not hesitate to contact our firm for an analysis of your situation and appropriate advice.
Frequently asked questions
What is the difference between TEG and TAEG?
The TEG (Taux Effectif Global) and the TAEG (Taux Annuel Effectif Global) both measure the total cost of a loan. The TAEG is the mandatory European standard for consumer credit (consumer credit, mortgage credit), while the TEG applies mainly to business credit. Their main difference lies in the mathematical calculation method used.
Are all loans subject to usury regulations?
No. Loans granted to legal entities (companies, associations) or individuals for their business needs are excluded from the scope of usury, with the notable exception of overdrafts. Leasing and random loans are also excluded.
What charges are included in the calculation of the TEG?
The TEG must include all charges that are a condition of the credit being granted. These include interest, application fees, commission, insurance premiums if insurance is required by the lender, and fees payable to intermediaries. Only charges for which the amount cannot be known before the contract is concluded, such as certain notary fees, may be excluded.
What happens if my loan is usurious?
If a court finds that a loan is usurious, the sums overpaid by the borrower are first deducted from future interest and then from the outstanding capital. If the loan has already been repaid, the lender must return the excess sums with interest. Criminal penalties (fines, imprisonment) may also be imposed on the lender.
Is the usury rate the same for all loans?
No. Every quarter, the Banque de France publishes different usury thresholds for different categories of loans (fixed-rate mortgages, consumer credit, overdrafts, etc.). Each category has its own ceiling, which corresponds to the average effective rate for that category, increased by one third.
Can I dispute a usurious rate myself?
Although this is possible, disputing a usurious rate is a technically complex procedure that requires you to recalculate the TEG/TAEG and master the applicable case law. The assistance of a lawyer is strongly recommended to maximise your chances of success and to support you in the amicable or legal procedures.
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