Usury Law and abusive interest rates

Solicitor in la Axarquía

Usury Law and abusive interest rates

Most of us know that when, for whatever reason, we default on a loan, the unpaid amounts will generate interest for late payment, which will increase the debt. The percentage to be charged for such interest must be fixed in the loan contract and may not be abusive. According to settled case law, they are considered abusive if they exceed 2.5 times the legal interest rate at the time of contracting (currently 7.5%) and there are even recent rulings that impose that they should not exceed the legal interest rate plus 2 points (currently 5%). The consequence of a judge’s finding that the clause is abusive in the event of a claim is that the clause is annulled and deemed not to have been applied, so that no amount will have to be paid as interest for late payment.

The problem comes when the abusive interest rate is not the late payment rate, but the ordinary or remunerative interest rate, which is the amount that is normally charged in exchange for the loan granted, whether it is paid or not. This is because case law tells us that, if the clause declared unfair affects an essential element of the contract, such as the price (the amount charged by the bank or other entity for lending us the money), it is not abusive, because it is understood that this clause, as essential, has been negotiated or accepted with full knowledge by the consumer, so that if it was imposed, he could have gone to another bank or entity that provided him with the loan at a cheaper price.

This is partly true, but it is also true that sometimes people accept such high-priced loans, for which high ordinary interest rates have to be paid, either because they are in need or because they are poorly educated or trained, and the lender takes advantage of these situations.

The Usury Law, known as the Azcárate Law, has existed for this type of case since 1908. Article 1 of the Act states

“A loan contract shall be null and void if it stipulates an interest rate significantly higher than the normal rate for money and manifestly disproportionate to the circumstances of the case or under such conditions as to make the loan contract unconscionable, when there is reason to believe that it has been accepted by the borrower because of his distress, inexperience or limited mental faculties”.

Although the Courts are traditionally reluctant to apply this Law, except in the most serious cases, there is a recent decision of the Supreme Court in 2015 that provides guidelines that indicate when its application is appropriate.

What this resolution clarifies is the concept of “manifestly disproportionate’, for which it states that it is necessary to analyse the interest rate at which the loan was granted in relation to the average rates at which banks and savings banks granted this type of loan in the year in which the loan was taken out.These data are published annually by the Banco de España.

If we prove that, p. e.g., we were granted a personal loan at 18% interest, when the average bank that year was giving us a loan at 10% interest; and we also prove that we were in a situation of need at the time, or that our education is poor, there is a high chance that the loan could be annulled under the Usury Law. The practical consequence of this is that only the amount borrowed will have to be repaid, without interest.

If you find yourself in a similar situation, contact Montosa Abogado and we will analyse the possibilities of your claim.

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