The concept of usury has been known since ancient times. It even has its place in the Old Testament. Today, however, it is not forbidden by the wrath of God, but by Czech legislation. It considers a contract of usury to be invalid. What characteristics must a contract have to be a usury contract? You will find out in the following text.
Usury is the granting of a loan or credit at an extremely high interest rate that is disproportionately high compared to normal interest rates. Usury is considered to be an unethical and illegal practice because it takes advantage of the financial distress or lack of information of the persons borrowing money.
A loan shark is a person or entity that makes such loans at unreasonably high interest rates. Usurers often take advantage of people to whom a traditional bank will not lend money (e.g. because they are already in debt) and so resort to borrowing from private individuals or non-banking companies that take advantage of their situation and charge prohibitively high interest rates.
Tip: Non-bank loans – what exactly do they mean, what are their advantages and disadvantages, and what can be their dangers? You can find out in our article.
Usury is not only morally problematic, but also legally punishable in many countries. In our country, usury is defined in the Civil Code and is a criminal offence. For this reason, all contracts that contain the elements of usury are void.
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The Civil Code says of usury: “A contract is void if, in entering into it, a person takes advantage of the distress, inexperience, weakness of mind, agitation or recklessness of the other party and promises or gives to himself or another a performance whose property value is grossly disproportionate to the mutual performance.” However, this does not apply to businessmen who have entered into a contract in the course of their business.
What exactly does gross disproportion mean? This is always assessed on an individual basis. In the case of loans, it is usually around 70% annual interest. Alternatively, comparisons with current prices and interest levels can also be used. If it exceeds twice or more, it will probably already be considered a gross disproportion.
It also comments on disproportionate cuts. It defines this as reciprocal performance where the performance of one party is grossly disproportionate to what the other party has provided. It differs from usury in that there is no abuse of the distress, inexperience, weakness of mind, agitation or recklessness of the other party.
In this case, the other party who has been defrauded has the option of claiming rescission of the contract and restitution. However, if the other party replaces what it has shortened, the contract remains in force. This claim must be made within one year of the conclusion of the contract.
This option is not available in the case of acquisition on a commodity exchange, in the case of investment, at auction, in the case of a bet or a game, or in the case of a fair settlement or novation. Nor does it apply if the parties have a so-called special relationship with each other.
In practice, a special relationship is, for example, a situation where friends agree that the performance will be partly for a fee and partly gratuitous, i.e. that one will sell the other a computer for a nominal amount with the understanding that he or she will help him or her repair the car in return.
It also does not apply to cases where the shortened party has expressly stated that it has agreed to the disproportion (e.g. because of the collector’s value of the object of purchase to it).
Usury, as a criminal offence, is also regulated by the Criminal Code. It provides that if someone takes advantage of someone’s weakness of mind, distress, inexperience, recklessness or someone’s agitation, thereby obtaining for himself or another an advantage whose value is significantly higher than the value of what he has provided in return, or if he transfers such a claim to himself with the intention of exercising it, he shall be punished by imprisonment for up to two years or by prohibition of activity.
Tip: We have discussed everything about imprisonment in our article.
Imprisonment for six months to five years or a fine is imposed if the offender obtains a substantial benefit, acts as a member of an organised group or if his or her conduct causes a state of serious distress to another. Imprisonment for three to eight years is also imposed on an offender who commits usury during a state of national emergency, during a war, during a natural disaster, etc., or if he or she has benefited to a large extent by his or her conduct.
However, the question remains as to what is meant by weakness of mind, distress, inexperience, recklessness and agitation. These conditions tend to be assessed individually, but we can still get a closer look at them by using the definitions of Constitutional Court judge and criminal law expert Pavel Šámal:
Weakness of mind is the inability of the victim to recognize the value of his or her performance or promise to the value of the offender’s reciprocal performance. The cause may be feeble-mindedness, lack or loss of intellectual capacity and other mental disorders due to mental disorder or illness or delayed development, manifested in particular by an inability to reason and think logically.
Distress means an extremely difficult situation of the injured person (or of another person whose distress is felt by the injured person as his or her own distress), caused by a specific and transient urgent need, the satisfaction of which is beyond the capacity of the injured person. As a rule, this will be an economic hardship, e.g. the repayment of a debt, the non-payment of which may seriously jeopardise the victim’s social position or financial circumstances.
Inexperience refers to a lack of knowledge or experience in the field in which the contract is concluded. Inexperience may consist, for example, of a lack of knowledge of prices, purchasing options, usually in conjunction with a lack of trust in the perpetrator. It is primarily inexperience in dealing with property matters.
Recklessness expresses the victim’s unrealistic assessment of the situation and his failure to realise the extent and seriousness of the consequences of his own conduct, in particular the consequences of the performance or promise of performance. It may be an expression of the injured party’s lack of information about the risks involved in a particular decision or of the injured party’s underestimation of those risks, or it may be an expression of ignorance of all the relevant circumstances, particularly as regards the relative proportion of the consideration.
This is a state of violent mental agitation brought about by a certain immediately preceding event which has particularly intensely affected the emotional component of the victim’s mental life to such an extent that in that state he was unable to consider whether the value of his performance or promise of performance corresponded to the value of the offender’s performance towards him.
So the question is, how do you defend yourself if you have entered into a contract amounting to usury?
Usury is the provision of loans at high interest rates, well above normal rates, and takes advantage of people’s disadvantaged position. This act is not only morally reprehensible but also legally punishable. Defending against usury primarily involves prevention – not borrowing from untrustworthy entities and consulting a lawyer. If you do become a victim of usury, you should file a criminal complaint and seek professional legal advice.
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