What is usury in Vietnam? Is the borrower obligated to repay the usury debt?
What is usury in Vietnam?
Pursuant to Article 468 of the 2015 Civil Code of Vietnam, the loan interest rates are as follows:
- 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.
- 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.
Currently, the loan interest rate does not exceed: 20% : 12 months = 1,666%/month
Thus, the interest rate is agreed upon by the parties and must not exceed: 20%/year of the loan amount, in case the lender requires an interest rate higher than 20%/year, it is considered as usury.
If the agreed interest exceeds the maximum interest prescribed in this Clause, the agreed interest shall become invalid.
What is usury in Vietnam? Is the borrower obligated to repay the usury debt?
How to deal with usury?
When the interest rate is higher than 20%/year, it is considered as usury and the excess interest rate shall become invalid.
Administrative penalties:
Pursuant to Clauses 4, 6 and 7, Article 12 of Decree No. 144/2021/ND-CP stipulating violations against regulations on management of business lines subject to security and order conditions, in which:
- A fine ranging from 10.000.000 VND to 20.000.000 VND shall be imposed for any of the following violations:
+ Running a pawn business with the interest rate exceeds that specified in the Civil Code;
+ 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;
- Additional penalties:
+ 6 – 9 months suspension of the license, practicing certificate, certificate of security and order in case of violations specified in Points h and q Clause 3; Point d Clause 4 and Clause 5 of this Article;
+ Expulsion of foreigners committing the violations specified in Clauses 3, 4 and 5 of this Article.
- Remedial measures: Mandatory return of the illegal profits earned from commission of the administrative violations specified in Points dd, i, k, l, m, n and r Clause 3; Points d, dd and k Clause 4 and Point b Clause 5 of this Article;
Note: The above fines are imposed upon administrative violations committed by individuals. The fine imposed upon an organization for the same violation shall be twice the fine imposed upon an individual. (Clause 2, Article 4 of this Decree).
Criminal prosecution:
Pursuant to Article 201 of the 2015 Criminal Code of Vietnam, a number of phrases have been replaced by Point i, Clause 2, Article 2 of the 2017 Law on Amendments to the Criminal Code on Usury in civil transactions as follows:
- 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.
- 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.
- 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, usury is a violation of the law, depending on the interest rate when lending, this act will be administratively sanctioned or prosecuted for criminal liability.
Is the borrower obligated to repay the usury debt?
Pursuant to Article 466 of the 2015 Civil Code of Vietnam on obligations of borrowers to repay loans as follows:
- Where the property lent is a sum of money, the borrower must repay the lender the loan in full when due. If the property is an object, the borrower must deliver to the lender an object of the same type, quantity and quality, unless otherwise agreed.
- Where a borrower is not able to deliver an object, it may, with the consent of the lender, repay the value of the borrowed object, in cash, as at the time and place of delivery.
- The place for repayment of a loan shall be the place of residence or head office of the lender, unless otherwise agreed.
- If a borrower fails to repay all or any instalment of an interest-free loan, in whole or in part, when payment falls due, the borrower must, if the parties so agree, pay interest on the overdue amount from the due date until the date on which payment is made, at the basic interest rate prescribed in Clause 2 Article 468 of this Code, unless otherwise agreed or otherwise prescribed by law.
- If a borrower fails to repay, in whole or in part, a loan with interest, the borrower must pay:
+ Interest on the principal as agreed in proportion to the overdue loan term and interest at the rate prescribed in Clause 2 Article 468 in case of late payment;
+ Overdue interest on the principal equals one hundred and fifty (150) per cent of the interest rate in proportion to the late payment period, unless otherwise agreed.
Thus, when borrowing money, the borrowers are obliged to pay both principal and interest as agreed upon by both parties and the interest rate must not be higher than the level prescribed in Article 468 of the 2015 Civil Code of Vietnam.
In the event of a dispute, the law will not protect the lender's interest in the interest in excess of 20%/year of the loan, so the borrower may not have to pay the excess interest as required by law.
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