Exemptions in anti-usury law in aid of international business
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Following the introduction of interest rate ceilings last year, the law has now been amended to allow exemption on usury sanctions in cases where loans are related to international finance transactions.
According to section 314A of the Criminal Code, usury occurs when a person who provides a loan or other related credit facility, gains an economic benefit which exceeds the rate of reference, i.e. the average annual rate (including commissions, encumbrances and any other relevant charges), increased by a margin between 5 to 10 percentage points, as set by the Central Bank of Cyprus quarterly and published in the official Gazette of the Republic of Cyprus.
The recent amendment introduces exceptions from section 314A. In addition to banks which were exempted from the very beginning, the following circumstances now also qualify for an exemption from the prohibition: Loan between connected entities. Loan to a legal entity where: The source of the funds given pursuant to the loan is outside Cyprus or the funds are paid outside Cyprus. The loan amount exceeds €1m. The minimum payout is €500k.
The above amendments aim to balance the need to protect local consumers from burdensome finance transactions entered into with non regulated parties and, at the same time, protect international business, where the bargaining power of the parties does not require particular protection and freedom of contract must prevail. As a result of this amendment, several questions which had arisen regarding the application of the initial anti-usury provisions (particularly in relation to applicability to non-Cypriot lenders) are now settled.
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