Regulations on usury are designed to protect borrowers against manifestly excessive interest rates. When credit is deemed to be usurious, the consequences for the lender are not limited to a simple contractual correction. French law has put in place an arsenal of penalties, both criminal and civil, to punish such practices. Understanding these mechanisms is essential for any borrower, whether an individual or a professional, in order to assert their rights. As we explain in our guide to the regulation of usury in french lawThe determination of whether a loan is usurious is governed by technical rules that require the application of strict sanctions.
The range of penalties for usurious interest rates
The classification of a loan as usurious opens the way to a twofold repression. In criminal terms, usury constitutes an offence with potentially severe penalties. In civil law, the loan contract is corrected in order to re-establish a financial balance and return to the borrower the sums wrongly received by the lender. This duality of penalties underlines the legislator's desire to protect public economic order while at the same time ensuring that the private interests of the injured borrower are defended.
Criminal penalties for usury
The criminal law punishes the most serious credit offences. The offence of usury is simply exceeding the legal rate, with consequences that can have a serious impact on the lender and its intermediaries.
Establishing the offence of usury: material and intentional elements
For usury to be recognised as an offence, two elements must be present. The material element is simple to establish: the fact of granting a loan at a global effective rate (TEG) that exceeds the usury threshold applicable at the time the contract is concluded. This threshold is published periodically and varies according to the nature and amount of the credit.
The intentional element, i.e. the intention to commit the offence, is often presumed by the courts. Judges consider that lenders, particularly credit professionals, cannot ignore the usury rates, which are published officially. This approach, sometimes referred to as "mathematical offence", means that the good faith of the lender or his ignorance of the legal threshold are rarely sufficient arguments to escape conviction.
Penalties incurred: imprisonment, fine, publications, closure of business, etc.
The penalties laid down in the Consumer Code are severe. The penalty for usury is up to two years' imprisonment and a fine of 300,000 euros. The court may impose either of these penalties, or both.
In addition to these main penalties, supplementary penalties may be ordered. The judge may require publication of the conviction in newspapers, at the expense of the offender, thus ensuring negative publicity for the practice. The judge may also order the temporary or permanent closure of the company where the offence was committed. In the event of closure, the company may be required to continue paying wages to its staff for a period set by the court, which may not exceed three years.
Those targeted: lenders and accomplices
The law is not aimed solely at the lender. Article L. 341-50 of the French Consumer Code extends criminal liability to any person who "in any capacity and in any manner whatsoever, directly or indirectly assists in obtaining or granting a loan taken advantage of". This broad wording includes intermediaries, brokers or any financial advisor who knowingly takes part in arranging a loan sharking scheme. These people are then considered to be the main perpetrators of the offence and incur the same penalties as the lender.
The statute of limitations on prosecution: starting point and special features
The starting point of the statute of limitations for the offence of usury has a special feature designed to protect the borrower. Under article L. 341-51 of the French Consumer Code, the statute of limitations on prosecution only begins to run from the date on which the lender last received interest or capital. In other words, as long as the loan is being repaid, the offence continues to be committed and the statute of limitations does not run. Each usurious payment constitutes a new materialization of the offence, enabling the borrower to take legal action even several years after the contract was concluded.
The removal of the ceiling on interest rates and the absence of criminal penalties for business overdrafts
Legislation has evolved to adapt to the financing needs of businesses. The rules on usury no longer apply to loans granted to legal entities for their professional activities, or to individuals acting for their professional needs. However, one major exception remains: account overdrafts granted to these professionals are still subject to a ceiling rate. However, there are no criminal penalties for exceeding this limit. The law provides for a specific regime in which only civil penalties, such as the repayment of overpayments, are applicable. The absence of a criminal penalty, despite its deterrent effect, remains a point of debate.
Civil penalties for usury
In addition to criminal sanctions, civil law provides for compensation for the damage suffered by the borrower. The aim is to purge the contract of its unlawful clause and restore financial equilibrium by repaying the sums received in excess.
Elimination of the excess and partial nullity of the interest stipulation
The main civil penalty for usury is not the total nullity of the loan contract, which would oblige the borrower to repay the capital immediately. The law has opted for a more protective solution: only the interest stipulation is affected. The penalty is a forced reduction in the interest rate to the level of the usury threshold in force at the time of the loan. This is known as partial nullity of the interest clause: only the excessive part of the interest is nullified. This sanction involves the foundations of a banker's liabilitywhich must ensure that its contracts comply with economic public policy. The consequences of a usurious TEG/TAEG are therefore direct and financial for the borrower, who sees the cost of his credit reduced to a legal level.
Jurisdiction and rules of procedure
Depending on the nature of the loan and the parties involved, the civil or commercial courts have jurisdiction over actions to establish that a loan is usurious and to obtain restitution of sums overpaid. If criminal proceedings are brought for the offence of usury, the criminal courts also have jurisdiction to rule on the civil action for damages. It is important to note that the borrower's participation in the transaction or voluntary performance of the contract cannot be used as grounds for declaring the action inadmissible.
Rules for charging for excessive collections
Where usury has been established, article L. 341-48 of the French Consumer Code sets out precisely how overpayments are to be dealt with. Overpayments are first offset against the normal interest due. If a balance remains after this first set-off, it is deducted from the principal amount of the debt. This deduction is made ipso jure, which means that it is binding on the lender without the need for a further court decision on this specific point.
Repayment of sums wrongly received
If, after deducting interest and capital, the debt is fully extinguished, any sums overpaid to the lender must be returned to the borrower. This repayment is accompanied by the payment of interest at the legal rate from the date on which the undue payments were made. The lender is thus obliged to repay not only the surplus received, but also any profits that this surplus may have generated.
The importance of legal advice in the event of a dispute over usury
Disputes relating to usury are highly technical. They require a meticulous analysis of the loan agreement and the preliminary offer, and a recalculation of the overall effective rate (TEG), which can be complex. Proof of usury often requires specialised financial expertise. What's more, the financial stakes and legal consequences, whether civil or criminal, are high. The assistance of a lawyer with expertise in credit law is therefore crucial in assessing the situation, gathering the necessary evidence and effectively defending the borrower's rights. Our firm is at your disposal to take care of your defence in the event of a dispute relating to wear and tear.
Confronting a credit institution can be intimidating for an individual or a small business. A lawyer will be able not only to argue the legal case, but also to negotiate with the opposing party to find an amicable solution where possible. If you suspect that your loan has a usurious rate, it is advisable to consult a professional for an analysis of your situation. Do not hesitate to contact our firm to discuss your options and obtain advice tailored to your case.
Sources
- Consumer Code
- Monetary and Financial Code
- Penal code
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