A gradual restructuring of consumer credit and the usury regime

A gradual restructuring of consumer credit and the usury regime

One of the key measures of the Lagarde Law aims to reform the calculations of usury, that is to say interest rates above which the loan is considered abusive. In France, the usury rate corresponds to the average effective rate of a credit category to which one third of its value is added.

Before April 1, 2011, the usury rate was calculated quarterly according to three categories of credits:

  • loans of an amount less than or equal to 1,524 USD;
  • overdrafts in accounts, revolving credits and purchases of goods on credit in an amount greater than 1,524 USD and mortgage life loans;
  • personal loans and other loans in excess of 1,524 USD.

These rates have led the banking organizations to favor the subscription of revolving credit, more remunerative for them, but more dangerous for the borrowers, often leading to situations of over-indebtedness.

The Lagarde law therefore provided for a modification of the above-mentioned categories, taking into account only the amount of the credit and no longer its nature.

As of April 1, 2013, the usury rates will therefore be calculated on three new credit categories:

  • loans of less than or equal to 3,000 USD;
  • loans of more than 3,000 USD and less than or equal to 6,000 USD;
  • loans over 6,000 USD.

Provisional credit categories

Provisional credit categories

In order to allow the various establishments to adapt and gradually adapt their policies and offers to the new text, the Lagarde Law provides for the gradual application of the new wear thresholds.

An interim period of eight quarters has therefore been put in place. Between April 1, 2011 and April 1, 2013, the wear calculation is based on 7 new categories.

This operation makes it possible to establish a rate of wear of the provisional categories which tends each quarter more towards its theoretical value which would be its own according to the categories announced for 2013.

By this method, the Reform Monitoring Committee in its report observes a narrowing of the gap between the different rates of usury, leaving in fact less room for maneuver for the banks and favoring a more favorable policy for borrowers.