usurious and abusive interest
Spanish regulations do not establish a legal limit on the interest that a lender can charge, does that mean that the desired interest rate can be agreed ?
We have found this question to be a common one among our customers, which we aim to address in this article.
What interest rate is acceptable? Usurious and abusive interest
Both banks and credit and microcredit marketing agents set high interest rates for late payment.
These interests frequently exceed 20% when the debtor has not been able to repay the capital lent within the term established by contract.
The same situation occurs when a bank account is overdrawn or in the “red numbers”.
The problem lies in the lack of regulation in this regard. Since there is no specific rule that establishes a limitation on interest rates, both lenders and borrowers do not know where the line is between what is admissible and what is abusive.
However, the courts are taking charge of marking the red lines, beyond which an interest rate can be considered abusive.
Art. 1 of the Usury Law determines that:
«any loan contract that stipulates an interest notably higher than the normal rate of money and manifestly disproportionate to the circumstances of the case or in such conditions that he is leonine, there being reasons to believe that he has been accepted by the borrower due to his distressing situation, his inexperience or his limited mental faculties.“
Courts have substantially changed the interpretation of this article in recent years in order to broaden the coverage of the rights of consumers and individuals.
Special importance is the Supreme Court Judgment of November 25, 2015. The Supreme Court in Plenary has concluded that loans whose interest rate doubles the average market interest they should be considered usurious and, therefore, void.
How does court criteria affect quick credits and microcredits?
We already know that quick loans and microcredits are those that can be obtained with hardly any paperwork. The client obtains liquidity in just a few hours, almost without meeting any requirements.
Some of these lenders agree to lend money to people who are even on delinquent records such as the ASNEF or the RAI.
Since the risk of default increases considerably in this type of financial product, the lender charges a high interest rate.
Well, the aforementioned Supreme Court Judgment of November 25, 2015 affects all consumer loans, also the so-called quick loans and microcredits.
The court is aware of the greater risk implicit in quick loans and microcredits, an excuse that it considers insufficient when the interest rate doubles the average market rate. This is how the Court explains it:
“Although the specific circumstances of a certain loan, among which are the greater risk for the lender that may arise from being less than the concerted guarantees, can justify (…) an interest higher than what can be considered normal or average in the market, as can happen in consumer credit operations, such a disproportionate rise in interest cannot be justified.”< /p>
What if the consumer agreed to such a high interest rate in writing in a contract?
It makes no difference whether the consumer has accepted and signed the application of a high interest rate. The Courts can determine that what the parties signed is abusive, in which case the nullity of the agreement is decreed and the interest rate ceases to be applicable.
The declaration of abusiveness does not mean that the client has been deceived. The person may have accepted a certain interest being aware of the economic repercussions that this entails, which does not affect the declaration of abusiveness.
An excessively high interest rate may be declared abusive even if the client has given free and informed consent.
What interest rate is applied when a court declares the interest rate agreed in the contract abusive?
In this case the consumer is only obliged to repay the lender the amount corresponding to the credit granted, without any additional interest.
If during the term of the contract the client was issuing interest payments, they may also claim that all the interest paid be returned to them.
In any case, it will be necessary to file a lawsuit. Neither the banks nor the lending entities are accepting claims that are not made through the courts.
If I am a consumer affected by an abusive interest rate, how long do I have to claim?
The client can always claim as long as the contract remains in force and interest continues to be charged.
Once the contract or the collection of interest has ended, the consumer has a period of five years to file a legal claim and request the annulment of the interest for abusive and the return of what was charged for that concept.
If I am a credit and microcredit marketing company, how do I calculate the late payment interest to avoid it being declared abusive by a court?
The truth is that it is not easy to answer that question. The Supreme Court has determined that the APR that exceeds twice the average market rate is abusive, but it also does not clarify whether this should always govern as a dividing line between what is admissible and not inadmissible.
Of course it serves as a precedent to take into account when making the decision on the interest rates traded.
The Usury Law requires analyzing the specific case, and allows the interest rate to be increased when the risk is higher.
The Supreme Court Judgment that we have commented on has ruled precisely with respect to those loans in which there are fewer payment guarantees, but it does not clarify whether the same limit is applicable to another type credits that do not imply as much risk.
In the past, higher late-payment interests were not accepted?
We saw previously that art. 1 of the Usury Law expressly alludes to the inexperience of the consumer when entering into a loan contract.
For some time the courts did not admit the consideration of usury or abusiveness when the borrower had studies, knowledge or financial experience of any kind.
Today, the criteria of the courts have changed and have been surpassed as we have explained in this article.
