Central Bank Caps Interest Rates at 11.62%

In a move to protect borrowers from predatory lending, the Central Bank of Cyprus (CBC) has officially set the “reference interest rate” at 11.62%, effective immediately.

This rate serves as the legal ceiling for all loan related charges in the Republic. Under the powers granted by Article 314A of the Cyprus Criminal Code, the CBC updates this benchmark every quarter to define the legal boundary between legitimate lending and criminal usury.

The Legal Line: Understanding Article 314A

The law in Cyprus is uncompromising when it comes to excessive interest. Any individual or entity that exceeds this 11.62% threshold during the provision, extension, or renewal of a loan is committing a criminal offense.

Lenders who breach this cap face severe penalties, including:

• Imprisonment: Up to 5 years in jail.

• Financial Fines: Up to €30,000.

• Dual Punishment: In some cases, the court may impose both a prison sentence and a fine.

Who Does This Apply To?

The reference rate applies to a wide range of financial activities to ensure that borrowers are not exploited through hidden costs. This includes:

• Issuing new personal or private loans.

• Extending the repayment period of an existing debt.

• The “discounting” or renewal of credit facilities.

• Collecting any financial benefit – on one’s own behalf or for a third party, that pushes the effective cost above 11.62%.

The Protective Shield for Consumers

By setting this rate, the Central Bank aims to maintain stability in the private lending market. The reference rate is calculated based on the average interest rates currently charged by credit institutions, plus a specific margin, ensuring the cap reflects the real-world economic climate while still preventing exploitative “loan shark” behavior.

Residents are encouraged to review any private loan agreements or credit extensions to ensure the total interest and fees do not surpass this newly mandated legal limit.

Source: Cyprus News Agency (CNA)