(Effects of demanding interest at a rate higher than the rate specified by law according to the Section 654 of the Civil and Commercial Code)

Abstract

This article is aimed to study the legal analysis of the usury on loan agreement which is an agreement that is an offense and there is a criminal penalty under the Excessive Interest Rate Act, B.E. 2560 (2017). The law is related to public order and good morals which results in all interest agreements being void according to the Civil and Commercial Code, Section 150, but the principal agreement remains valid under Section 173. Therefore, it can be seen that the provisions of the Civil and Commercial Code, Section 654, as stated at the end that “When higher rate of interest is fixed by the contract, it shall be reduced to 15% per year.” would have no effect in the current law anymore. If a general person or even a law student who only reads the text in Section 654 that says, “Interest shall not exceed 15% per year; when higher rate of interest is fixed by the contract, it shall be reduce to 15% per year.”, that person would misunderstand that the usury on loan agreement results in a reduction of interest to only 15% per year, which in fact is not so because all interests over the rate must be void under the Excessive Interest Rate Act, the Civil and Commercial Code, Section 654 and Section 150. For this reason, the author considers that Section 654 of the Civil and Commercial Code should be amended by stating that “If the interest rate in the contract exceeds the rate prescribed by law, that agreement shall be void.” which is a statement in respect of legal enforcement to be clear and in accordance with the intent to enforce the law to make it easier for people to understand without any further consideration of the provisions of the law.