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Anti-Usury Law Enacted

21.04.2009

Several amendments to law enter into force on 1 May 2009, aiming to regulate issues concerning microloans and to extend the definition of transactions contrary to good morals. The amendments significantly affect interest rates charged on such loans.

 Under the new regulation, transactions conducted on terms that are extremely unfavourable to one of the parties are considered void. Consumer credit contracts, i.e. microloans, with an annual percentage rate exceeding the rate published by the Bank of Estonia (which was 35.9% in March 2009) more than three times are also deemed to be void. Therefore, transactions with an annual percentage rate of more than 107.7% are currently regarded as void, but the rate published by the Bank of Estonia is subject to change once a month. However, in the case of such transactions it must also be proven that the lender was aware or should have been aware that the borrower took the loan due to its urgent needs, dependence, inexperience or other similar circumstances.

If a transaction is void for the above reason due to the obligation to pay interest contrary to good morals, the loan may be returned by the date when the entire loan was due according to the void contract. In such a case the interest to be paid on the loan is equal to the interest rate provided by law, which is 2.5% at the moment.

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