Loan with 3938% interest, isn’t it usury?
Recently, the new Magical Loan has boasted on the pages of Capital lender daily, with its success. The Magic Loan lasts approximately 6 weeks in the Czech Republic. It is a short-term payday loan. Magic loan allows people to borrow a few thousand dollars for a maximum of 30 days. However, the annual interest rate is 3938%. Isn’t it usury anymore?
Magic loan for workers
The magical loan company boasts about 500 loans in the first 6 weeks on the news site Capital lender. In total, this amounted to $ 3 million.
A typical client of this financial product is said to be a worker aged 30-40, who has an average monthly wage of $ 18,000. Typical magic payday loan is then 5500 USD for 20 days. You will pay a fee of $ 1235 for a similar loan with this company. This means that the annual percentage rate of charge is also magically high. The APRC is based on 3938%.
What is usury by law
Under Czech law, specifically the Criminal Code (Act No. 40/2009 Coll.), Section 218, usury is a criminal offense that can be punished by imprisonment of up to 6 months to 5 years and / or a fine. If usury is committed on a large scale, there is even a penalty of 8 years.
What is usury is specifically described by law as follows:
(1) Any person who abuses one’s intellectual weakness, distress, inexperience, recklessness or one’s agitation shall give or promise to himself or another a performance whose value is grossly disproportionate to the value of the mutual performance, or who claims or intends to claim such a claim will be punished by imprisonment for up to two years or disqualification.
By common sense, one would say that a 3938% loan is a clear usury. After all, it is not normal to pay such high interest rates (or 3938% is not interest, but more precisely APR, because this type of loan is not paid traditional annual interest, but only one-time fees).
Magic loan and more, is it usury or not?
But in order to be usury also under the Criminal Code, the conditions “must exploit one’s intellectual weakness, distress, inexperience, frivolity or one’s agitation” would have to be met. And this is probably not the case.
It is clear that who, other than a person in need, would take such an expensive loan? Every normal person who does not have great financial difficulties normally goes to the bank, borrows from his acquaintances or waits a few days before getting a paycheck.
However, companies that provide this type of loan (and not just the magical loan, there are many more) can resist claiming that all of their clients have been made aware of how much the loan will cost. Certainly nobody forced them and did not put pressure on them. So in court they would probably not prove usury.
Nevertheless, loans with an interest of 3938% are certainly not normal and at least can be a moral problem. The companies offering them are well aware that their clients are in a desperate situation and are just trying to feed on their misfortune.