The consumer is protected not only against concealment of the actual costs of consumer credit thanks to the introduction of the annual percentage rate of charge (APRC) on consumer credit, but also against excessively high borrowing rates.
The interest rate is determined by agreement between both parties to the contract and reflects among other things a premium for the consumer’s credit risk and the degree of necessity, but it is not without restrictions.
Basic protection is provided by Article 1796 of the Civil Code pertaining to usurious contracts, according to which:
“A contract shall be deemed invalid if, in its conclusion, somebody takes advantage of distress, inexperience, intellectual weakness, agitation or recklessness of the other party and extracts a promise to provide performance to himself or somebody else the value of which is in stark contrast to the mutual performance.”
This provision is broadly in line with the definition of usury in the Criminal Code and also corresponds to the current concept of usurious contract in civil law as shaped by court rulings. However, a newly stipulated penalty will facilitate argumentation for the courts, as they will not have to infer invalidity of a usurious contract from conflict with good morals under Article 580 of the Civil Code.
With regard to the taking advantage of a consumer’s state of distress that induces the conclusion of even a manifestly disadvantageous credit contract, reference can still be made to the justification of Ruling No. 3 Tdo 225/2012 of the Supreme Court of the Czech Republic, which stated:
To conclude whether the aggrieved party acted in distress, which the perpetrator of the crime of usury took advantage of, it is not relevant whether the aggrieved party got into distress by his own actions or owing to circumstances independent of his own will. If the aggrieved party could have prevented the impending distress by, for example, repaying due obligations from other financial sources, but did not do so and subsequently got into distress, this does not preclude criminal liability of the perpetrator (usurer). The essential feature is that the perpetrator, aware of the aggrieved party’s distress, took advantage of it and provided him with a solution, for example in the form of a short-term loan, for which he is contractually extracting performance which is in stark contrast to his own performance in nature and amount.
The standard for assessing the limits for contractual borrowing rates on consumer credit was set by the Supreme Court in Ruling No. 21 Cdo 1484/2004:
“It is inconsistent with the generally accepted rules of conduct and relationships between people and the moral principles of the social order for a debtor to pay a creditor excessive or even usurious interest; according to the Supreme Court, a level of interest that is excessive, and therefore in conflict with good morals, is usually a level of interest agreed pursuant to Article 658(1) of the Civil Code which substantially exceeds the usual interest rate at the time of agreement, determined above all with regard to the highest interest rates applied by banks in the provision of credit or loans.
“In the case at issue, the courts found that the interest rate on loans provided by banks was between 9% and 15.5% per annum at the time of conclusion of the credit contracts. As the negotiated level of interest (60% per annum) substantially (almost four times) exceeded the upper limit for this usual interest rate, in this situation the legal conclusion is justified that this provision was in conflict with good morals and therefore invalid pursuant to Article 39 of the Civil Code.”
A reference value for determining the usual rates on consumer credit can be obtained from statistical data collected by the CNB in the ARAD database and compiled in Table B1.5: “Annual percentage rate of charge on CZK-denominated bank loans to Czech households – new business (%); 1 – Consumer credit”, available on the CNB website.