What is the purpose of the usury rate?
The usury rate is the maximum legal rate that credit institutions are allowed to charge when granting credit. This rate varies according to the type of loan. It is set at the end of each quarter for the following quarter by the Banque de France and published in the Journal officiel.
The purpose of these thresholds is to protect borrowers from potential abuse.
How is the usury rate defined?
The usury rate (or threshold) is the maximum annual percentage rate of charge (APR, formerly TEG) at which a loan may be granted. A loan is considered usurious if it is granted at an APR that is one-third higher than the average effective rate charged during the previous quarter.
The APR is the rate used to assess whether a credit offer exceeds the usurious threshold. It comprises :
- Le interest rate (or nominative rate),
- The costs, commissions and miscellaneous remuneration (e.g. registration fees, administration fees),
- And possibly insurance premiums borrower where compulsory insurance is taken out at the same time.
How is it calculated?
The Banque de France sets the usury rate on the basis of the average effective rates charged by credit institutions plus one third.
The usury thresholds are published in the Journal officiel at the end of each quarter for the following quarter.
These thresholds vary according to the amount borrowed, the term of the loan and the category of loan (consumer credit, fixed or variable rate loans, account overdraft, revolving credit, etc.).
Banque de France usury rate: 2022Q1
| Category | Average effective rate for 4th quarter 2021 | Usury rate applicable from 1 January 2022 |
|---|---|---|
| CASH LOANS - Household cash loans and home improvement loans up to €75,000 (1) | Series | Series |
| Loans of up to €3,000 | 15,88 | 21,17 |
| Loans of between €3,000 and €6,000 | 7,35 | 9,8 |
| Loans over €6,000 | 3,7 | 4,93 |
| LENDING FOR IMMOVABLE PROPERTY - Mortgages and building loans over €75,000 (2) | Series | Series |
| Fixed-rate loans with a term of less than 10 years | 1,83 | 2,44 |
| Fixed-rate loans with a term of between 10 and less than 20 years | 1,8 | 2,4 |
| Fixed-rate loans with a term of 20 years or more | 1,81 | 2,41 |
| Variable rate loans | 1,75 | 2,33 |
| Bridging loans | 2,16 | 2,88 |
| Loans to legal entities not engaged in industrial, commercial, craft, agricultural or non-commercial activities | Series | Series |
| Fixed-rate loans with an initial term of more than 2 years | 1,3 | 1,73 |
| Variable-rate loans with an initial term of more than 2 years (3) | 1,15 | 1,53 |
| Loans granted with a view to instalment purchases or sales | 1,51 | 2,01 |
| Account overdrafts | 11,47 | 15,29 |
| Other loans with an initial term of up to 2 years | 1,01 | 1,35 |
| Loans to natural persons acting for their professional needs and to legal persons carrying on an industrial, commercial, craft, agricultural or non-commercial professional activity | Series | Series |
| Account overdrafts | 11,47 | 15,29 |
(1) Definition - Short-term loans: loans to households not falling within the scope of 1° of article L. 313-1 of the French Consumer Code or not constituting a credit transaction for an amount less than or equal to €75,000 intended to finance expenditure on the repair, improvement or maintenance of residential property or property used for both professional and residential purposes.
(2) Definition - Crédit Immobiliers: loans to households falling within the scope of 1° of article L. 313-1 of the French Consumer Code or for amounts in excess of €75,000 to finance the repair, improvement or upkeep of residential property or property used for both professional and residential purposes.
(3) Average rate applied (TMP): the average rate applied is the effective rate for business loans with an initial term of more than two years, at a variable rate, for an amount less than or equal to 152,449 euros. This rate is used by the General Tax Directorate to calculate the maximum rate of deductible interest on shareholder current accounts.
20-year usury rates fall on 1 April
With bank rates rising and the usury rate falling, this will have a jaws effect on access to home loans for some households.
Here's an example:
Take a couple with an annual income of €50,000 who want to borrow €230,000 over 20 years with a deposit of €10%. They will be refused credit on the grounds that the usury rate has been exceeded. In fact, with an interest rate of 1.35%, to which we add the insurance rate of 0.3% (on the initial capital, 50% on each head), plus guarantee fees and administration fees. This gives an APR of 2.55%. This means that the APR is higher than the usury rate, which will result in a loan refusal.