Are there any laws or regulations limiting the amount of interest that can be charged by lenders?

Lending & Secured Finance

Croatia Small Flag Croatia

The amount of interest that can be charged by lenders is regulated by the Civil Obligations Act.

The contractual rate of interest among persons of whom at least one is not a trader (e.g. is a natural person) may not exceed the statutory default interest rate applicable on the day of entering into the contract or, where the contracted rate of interest is variable, applicable on the day the contractual rate of interest changed. If the contractual interest exceeds the statutory interest, the highest statutory rate of interest is applicable.

The contractual rate of interest among traders or a trader and a person governed by public law may not exceed the statutory default interest rate, increased by one half of that rate.

The manner of determining the default interest rate on trade and contractual relations, as well as in relation to other relationships, is based on the average interest rate which is determined by the Croatian National Bank and published in the Official Gazette on 1 January and 1 July each year.

Just for reference, on 1 January 2019 the default interest rate on trade and contractual relations amounted to 8.54% and in relation to other relationships, it amounted to 6.54%.

Czech Republic Small Flag Czech Republic

The amount of interest must be individually assessed on a case-by-case basis. However, according to established case law, the interest rate that exceeds the market standard interest rate that banks are entitled to charge on average for a corresponding loan by a factor of three is considered immoral. Such immorality results in the nullity of the loan agreement. This provision applies to all lenders, whether national or foreign banks or other lenders.

Finland Small Flag Finland

Not as such. However, the Criminal Code includes a general prohibition against usury in lending. The Consumer Protection Act further includes specific restrictions on interest that may be charged on consumer loans.

Germany Small Flag Germany

There is no general rule limiting the amount of interest. However, interest may be regarded as excessive if it exceeds the interest rate charged in the market for that type of loan by more than 100 per cent. This restriction applies in exceptional cases only and there are very few cases known where this provision has been successfully invoked by a borrower party. Also, borrowers may not agree in advance to pay interest on interest; there are, however, a number of drafting technics available which have – commercially – a comparable effect.

Spain Small Flag Spain

There is no a specific concept of an usury rate in Spain, although some Spanish courts have declared null and void the application of certain default interest (eg: 29%) in consumer credit agreements.

Notwithstanding the above, the Supreme Court has sometimes declared that mortgage loan terms have been held to be unfair if default interest is above the following ceiling:

  • Mortgage loans granted for the purchase of the main residence property, secured by a mortgage which is granted over such property: those clauses which include default interest rate greater than three times the legal interest rate effective at the time of accrual.

    Interest may only accrue on the outstanding principal. Therefore, default interest may not be capitalized.

  • Mortgage loans granted for purposes other than that referred to above, secured by mortgages granted over any properties irrespective of their nature: those clauses which include default interest rate representing an increase of more than two percentage points over the ordinary interest agreed in the corresponding Loan.

    The court may also hold that a term is unfair if default interest requires any consumer to pay a “disproportionately high sum in compensation” even the above mentioned ceilings are not exceeded.

    As has already been stated, the court decision which sets forth that these terms are unfair, based on the case law of the Supreme Court, will also render these null and void. Therefore, the corresponding terms shall be treated as if they had not been established in the relevant loan, and the only payable interest shall be the one stipulated in the loan until the enforcement order. From that moment onwards, a procedural delay interest (interés de mora procesal) will be applied (an annual interest equal to the legal interest plus two points.)

The Real Estate Credit Act (Ley reguladora de los contratos de crédito inmobiliario), which was passed, but still pending to be published in the Official State Gazette, transposes the European Directive (Directive 2014/17/EU on credit agreements for consumers relating to residential immovable property) and seeks to enhance the transparency of mortgage contracts to be signed with individuals (customers). This law shall entry in force as of the date falling three months since the date it is published.

According to the Real Estate Credit Act, delay interest may not exceed the ordinary interest agreed in the loan agreement more than three points.

Philippines Small Flag Philippines

With the suspension of the Usury Law which limits interests on lending, there no longer exists a law or regulation limiting the amount of interest in lending. In general, parties to a lending agreement may stipulate any interest rate. However, courts can interfere by declaring stipulated interest rates unconscionable. The BSP may also evaluate the compliance of the stipulated interest rate with prevailing rates in the international market when evaluating applications for foreign loan approval or registration.

Sweden Small Flag Sweden

In relation to commercial loans, there are no restrictions on the amount of interest that can be charged, save if the applicable rate amount to usury. If no default interest rate has been agreed, default interest is payable at a statutory rate pursuant to the Swedish Act on Interest Rates (Sw: Räntelag (1975:635)).

In relation to consumers, the Swedish Act on Consumer Credits (Sw: Konsumentkreditlag (2010:1846)) imposes restrictions on how high the applicable interest rate may be by stating that neither the annual interest rate nor the default interest rate may exceed the official reference rate (as set from time to time by the Central Bank of Sweden) plus 40 per cent.

Turkey Small Flag Turkey

As per Article 8(1) of the Turkish Commercial Code (Law No. 6102) (the "TCC"), contractual interest rates in commercial transactions may be freely determined by the relevant parties. There is no clarity under TCC and the Turkish Code of Obligations (Law No. 6098) (the "TCO") as to whether the default interest rate applicable to a commercial transaction can be freely determined by the relevant parties, but in standard market practice, default interest rates are determined by the parties freely. It should also be noted that Turkish law provides restrictions on application of interest on the accrued interest (i.e. compound interest) save for certain exceptional cases. That said, accrual of interest over default interest is prohibited without any exceptions.

United States Small Flag United States

Federal law does not impose any restrictions on the rate of interest charged by lenders making commercial loans. State laws generally contain limits on the rate of interest (usury limits) that can be charged to borrowers, and these interest rate limits often depend upon the principal amount of the loan, the purpose of the loan and the type of lender. In many states, commercial loans are effectively excluded from the general usury restrictions based upon the principal amount or the commercial purpose of the loan. Whether certain fees charged in connection with a commercial loan are treated as interest for purposes of determining compliance with the usury limits depends upon each state’s law. In some states, such as New York, there are civil and criminal usury rate restrictions. Finally, some state laws preclude legal entity borrowers from raising usury as a defense to the repayment of a loan.

Switzerland Small Flag Switzerland

There is no specific Swiss legislation limiting the amount of interest that can be charged by lenders, safe for (i) consumer credits (i.e. credits granted to individuals for purposes other than business or commercial activities, regulated by the Swiss Consumer Credit Act (Bundesgesetz über den Konsumkredit, KKG)), (ii) general principles on usury (assessed on a case-by-case basis in light of the terms and circumstances of the loan, in the absence of clear threshold).

Also, compound interests are prohibited under Swiss law so that default interests cannot be charged on default interests.

Exceptions may apply in case of intra-group financing which may trigger certain restrictions (i) on the maximum interest rates (so-called safe harbour rates) chargeable on loans granted to or by Swiss group entities and (ii) in light of thin capitalisation rules, the breach of which could trigger Swiss withholding tax.

United Kingdom Small Flag United Kingdom

Generally, no, there are no anti-usury laws or regulations in England and Wales applicable to corporate (as opposed to consumer) lending transactions. However, there are potential limitations on a lender’s ability to charge interest at an increased rate where the borrower is in default (“Default Interest”) or impose other financial sanctions, where, if the relevant rate charged is considered to be a penalty, it will not be enforceable. Whether Default Interest is considered to be a penalty is not dependent on the amount charged, but on whether the provisions which apply on default represent secondary obligations which impose a detriment on the defaulting party which is out of proportion to the interest of the non-defaulting party in enforcing the primary obligations in respect of the borrowing of the loan.

Jersey Small Flag Jersey

There is no statutory cap on the level of interest which may be charged in Jersey. The Jersey courts however retain a discretion to reduce the charging of contractual interest to a rate which is moderate or reasonable on public policy grounds.

In addition, as noted in question 24 below, if a borrower were to become insolvent, it is possible that a loan agreement could be set aside, or the interest payable reduced, if the transaction were held to be an extortionate credit transaction.

Hong Kong Small Flag Hong Kong

s24 of the MLO makes it illegal to lend or offer to lend money at any effective rate of interest which exceeds 60% per annum and makes any agreement for the repayment of any loan or the payment of interest on any loan and any security therefor unenforceable in any case in which the effective rate of interest exceeds such rate. s25 of the MLO provides that a Hong Kong court may "reopen the transaction so as to do justice between the parties" if the transaction is "extortionate". For this purpose, a loan in respect of which the effective rate of interest exceeds 48% per annum is presumed to be "extortionate".

Austria Small Flag Austria

There are no regulatory limitations regarding the interest charged by lenders (under the Austrian Banking Act). However, there are certain regulations under Austrian civil law limiting the amount of interest that can be charged by lenders. For example the Austrian civil law prohibits immoral agreements (sittenwidrige Veträge), in particular “usurious practices” (Wucher), meaning interest rates that are clearly disproportionate to market terms and conditions and which were only agreed upon due to the weakness, predicament or inexperience of the borrower.

Further, Austrian law distinguishes between consumers and entrepreneurs, providing in general stricter information duties and formal requirements when dealing with consumers. This also applies to interest rates.

Mexico Small Flag Mexico

In principle, there are no major restrictions. Mexican financial entities are subject to Regulation 14/2007 issued by Banxico. The general rule is that financial institutions may freely and mutually agree on interest rates applicable to their financing arrangements, provided that financing documents clearly state that there is a single interest rate and a single default rate. Interest rates may vary during the term of a credit facility as long as only one interest rate applies to a specific period of time. Lenders and borrowers may opt for fixed, variable and variable interest rates with a maximum limit.

When interest rate is not agreed by the parties, Mexican law provides for a default legal interest rate. Pursuant to the provisions of the Federal Civil Code (CCF) and the Commerce Code (CC), such default interest rates shall be an annual ordinary interest rate of 9% and an annual default rate of 6%.

Note that under Mexican law, "interest on interest" covenant and clauses would not be enforced. This does not necessarily mean that interest capitalization is prohibited, but it is limited to simple interest and default interest. Mexican courts have held that unreasonably high interest rates may amount to usury and are not enforceable.

Bosnia & Herzegovina Small Flag Bosnia & Herzegovina

No, the law does not provide for regulations limiting the amount of interest.

Updated: June 5, 2019