Vietnam: If the pawnshop service provider is investigated for usury, can the borrower write off the loan?
Are pawnshop service providers in Vietnam allowed to lend money?
Pursuant to Clause 4, Article 3 of Decree No. 96/2016/ND-CP, pawnshop service is an investment and business subject to security and order conditions.
According to Decision No. 27/2018/QD-TTg on the system of economic sectors and professions in Vietnam, pawnshop service is classified into the group of financial, banking and insurance activities.
The pawnshop service is usually registered under code 6492: Other credit granting.
At the same time, according to Decision No. 27/2018/QD-TTg, other credit granting (6492) includes:
Financial service activities primarily concerned with making loans by institutions not involved in monetary intermediation (such as joint venture, industrial banks, investment clubs). These entities provide the following types of services:
- granting of consumer credit;
- international trade financing;
- provision of long-term finance to industry by industrial banks;
- money lending outside the banking system;
- credit granting for house purchase by specialized non-depository institutions;
- pawnshops and pawnbrokers;
Pursuant to Clause 4, Article 3 of Decree No. 96/2016/ND-CP stipulating: Pawnshop services, consisting of: Providing loans to borrowers who must put their legitimate property in ledge at pawnshop service providers.
Thus, a pawnshop service provider is a company in a conditional business and investment industry, providing loans to borrowers who must put their legitimate property in ledge at pawnshop service providers in Vietnam.
What is the current legal interest rate of a pawnshop service provider?
Pursuant to Article 468 of the 2015 Civil Code of Vietnam specifying the current loan interest rates as follows:
Interest rates
1. The rate of interest for a loan shall be as agreed by the parties.
The rate of interest for a loan agreed by the parties may not exceed 20% per year, unless otherwise prescribed by law. According to actual conditions and at the proposal of the Government, the Standing Committee of National Assembly shall adjust the above interest and send report to the National Assembly at the latest session.
If the agreed interest exceeds the maximum interest prescribed in this Clause, the agreed interest shall become invalid.
2. Where parties agree that interest will be payable but fail to specify the interest rate, or where there is a dispute as to the interest rate, the interest rate for the duration of the loan shall equal 50% of the maximum interest prescribed in Clause 1 of this Article at the repayment time.
In addition, in Article 29 of Decree No. 96/2016/ND-CP, there are provisions as follows:
Responsibilities of pawnshop service providers
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6. The interest rate of loans provided when receiving pledged property shall not exceed the interest rate regulated in the Civil Code.
Thus, the loan interest rate provided when receiving pledged property shall not exceed the interest rate regulated in the Civil Code.
From the above provisions, it can be understood that the loan interest rate provided when receiving pledged property will be agreed upon by the parties but must not exceed 20%/year of the loan amount, ie the average maximum loan interest rate will be 1,666%/month.
When a pawnshop service provider lends money with an interest rate exceeding 20% per year, it is considered usury.
Vietnam: If the pawnshop service provider is investigated for usury, can the borrower write off the loan?
How to handle usury in Vietnam according to the law?
Administrative fine:
Pursuant to Article 12 of Decree No. 144/2021/ND-CP stipulating administrative penalties for violations against regulations on social safety, security, order; social evils, fire prevention and firefighting; rescue; domestic violence prevention and control. In which, Point dd, Clause 4, Article 12 of Decree No. 144/2021/ND-CP stipulates as follows:
Violations against regulations on management of business lines subject to security and order conditions
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4. A fine ranging from 10.000.000 VND to 20.000.000 VND shall be imposed for any of the following violations:
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d) Running a pawn business with the interest rate exceeds that specified in the Civil Code;
dd) Failure to apply for registration of the business line subject to security and order conditions that involves grant of secured loans with interest rate exceeds that specified in the Civil Code;
Thus, the case if the personal loan interest rate is above 20%/year but not yet 100%/year to be criminally handled or the nature of the violation is not enough for criminal handling, such individual will be fined from VND 10,000,000 to VND 20,000,000.
Note, the above fine level applies only to individuals, in case of violations by organizations, the fine level is 2 times that of individuals (according to Clause 2, Article 4 of Decree No. 144/2021/ND-CP).
Criminal prosecution:
Pursuant to Article 201 of the 2015 Criminal Code (amended at Point i, Clause 2, Article 2 of the 2017 Law on Amendments to the Criminal Code) stipulating as follows:
Usury in civil transactions
1. Any person who offers loans at an interest rate that is five times higher than the maximum interest rate specified in the Civil Code and earns an illegal profit of from VND 30,000,000 to under VND 100,000,000 or recommits this offence despite the fact that he/she has incurred an administrative penalty or has an unspent conviction for the same offence shall be liable to a fine of from VND 50,000,000 to VND 200,000,000 or face a penalty of up to 03 years' community sentence.
2. If the illegal profit earned is ≥ VND 100,000,000, the offender shall be liable to a fine of from VND 200,000,000 to VND 1,000,000,000 or face a penalty of 06 - 36 months' imprisonment.
3. The offender might also be liable to a fine of from VND 30,000,000 to VND 100,000,000, be prohibited from holding certain positions or doing certain works for 01 - 05 years.
Thus, a fine of from VND 50,000,000 to VND 200,000,000 or face a penalty of up to 03 years' community sentence shall be imposed in the following cases:
- If there is a lending activity with an interest rate of 100%/year or more and have illegal profits from VND 30 million to less than VND 100 million
- Or recommits usury despite the fact that he/she has incurred an administrative penalty
- Or has an unspent conviction for usury.
In case high-interest lenders earn illegal profits of VND 100 million or more, the offender shall be liable to a fine of from VND 200,000,000 to VND 1,000,000,000 or face a penalty of 06 - 36 months' imprisonment.
In addition, the offender might also be liable to a fine of from VND 30,000,000 to VND 100,000,000, be prohibited from holding certain positions or doing certain works for 01 - 05 years.
Can a loan be forgiven when the lending company is investigated for usury in Vietnam?
In this regard, Article 468 of the 2015 Civil Code of Vietnam stipulates the loan interest rate, in which the law clearly states that the rate allowed by law is 20%/year.
According to that, in case the lending company is investigated for violations of lending at high interest rates, it will be handled according to Clause 1, Article 468 of the 2015 Civil Code of Vietnam as follows:
Interest rates
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If the agreed interest exceeds the maximum interest prescribed in this Clause, the agreed interest shall become invalid.
Thus, for the loan interest rate provided when receiving pledged property is higher than the interest rate limit of 20%/year, the excess amount will not be effective.
Therefore, the borrower when pledging the property may be forgiven for the interest rate exceeding the limit only.
In case the interest is higher than the prescribed amount that the borrower has paid to the lending company, it will be determined as an illegal gain, the competent authority will confiscate this money according to the provisions of Article 5 of Resolution No. 01/2021/NQ-HDTP, specifically as follows:
Handling objects and money directly related to crime
1. Confiscation of state funds for:
a) Money and property other than the offender used to lend;
b) The interest corresponding to the highest interest rate as prescribed by the Civil Code that the offender has collected from the borrower.
c) Money and other property that the offender has gained from the use of interest and other illegal revenues.
2. Return to the borrower the illegal profits that the offender has actually collected, unless the borrower uses the borrowed money for illegal purposes (such as gambling, illegal drug trading, obtaining property by fraud, etc.) then the illegal profits shall be confiscated to the state fund.
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