Criminal Code Amendment-Legal update interest rate ceilings for private lenders
Following a spike in instances of loan sharking and profiteering in the Cyprus market on loans granted by non-financial institutions, the House of Representatives on 29 April 2011, amended the Criminal Code Law by Amendment Law No. 72(I)/2011 which introduced three new sections (314A, 314B and 314C) to the Criminal Code.
Under the newly enacted provisions of the Criminal Code it is an offence to charge, receive, collect, agree or take, an interest rate or other economic benefit during the provision, renewal, extension, or early prepayment of a loan which exceeds the Reference Rate.
The Reference Rate is determined by the Central Bank of Cyprus quarterly on the basis of the average lending interest rates applied by commercial banks in Cyprus plus a certain margin. Currently the Reference Rate is set at 12,57%.
It is important to note that the new provisions of the Criminal Code do not apply to licensed financial institutions (e.g. banks, co-operative savings banks).
Unfortunately it is not clear whether the new provisions of the Criminal Code cover situations where the lender or borrower is a non Cyprus resident, or whether it covers loans in a currency other than EUR (e.g. loans in RUB, USD, STG).
Breach of the restrictions imposed by the new sections of the Cyprus Criminal Code constitutes an offence and a person who commits the offence, on conviction is subject to imprisonment not exceeding 5 years and/or a Euro 30.000 penalty. In case of a company, the directors may have personal liability.