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​Lending money: loan or usury

Lending money: loan or usury

People often turn to us with questions about legal regulations of lending/ getting money. Questions mainly concern legality of estimated rates. According to the Civil Code of RA the lender (a person who gives money) shall be entitled to receive interest on loan amount from the borrower (a person who receives money) unless otherwise provided for by the loan contract. The loan contract shall clearly prescribe the amount of interests and procedure for calculation thereof. At the time of conclusion of the loan contract the amount of the interest may not exceed 24% (the double of the bank rate of the Central Bank of the Republic of Armenia-12%). But the rates are often higher. What does the law provide for that case. According to the Criminal Code of RA usury is loaning money or property at an interest rate more than twice exceeding the one of the rates estimated by law, as well as making deals with individuals on extremely unfavorable conditions of which the other party took advantage. Usury is punished with a or with imprisonment. In other words, setting higher rates, than it is estimated by law is a criminally punishable act - a crime.

2. Parallel to it, according to the Civil Code a transaction not complying with the requirements of the law or other legal acts is invalid. This is related to described case. An invalid transaction shall not entail legal consequences. In case of invalidity of a transaction each of the parties shall be obliged to return the other party all that has been received under the transaction. So when interest rates are higher that 24%, the borrower may submit a report to Police and parallel to that the court may declare the provisions of the transaction invalid, which contradict the law (the part of interest rates). But in any case the steps which will be taken are unique. It is better to consult advocates beforehand to organize process more quickly and efficiently.

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