Legislative Yuan completed the third reading and passed the bill to lower the cap on agreed interest rates per annum from 20% to 16%

分享到

[2021/01/19]

The Legislative Yuan completed the third reading of the Draft Amendment to Article 205 of the Civil Code on December 29, 2020 to lower the cap on agreed interest rates per annum.  On December 30, 2020, the Draft Amendment to Articles 10-1 and 36 of the Enforcement Act of the Part of Obligations of the Civil Code were passed to provide packaged measures following the lowering of interest rates.

1. The cap on agreed interest rates per annum is lowered from 20% to 16%.  The portion of Agreements with interest rates exceeding 16% is null.

Article 205 of the current Civil Code stipulates: “If the agreed rate of interest exceeds 20% per annum, the creditor shall not be entitled to claim any interest over 20%.”The Draft Amendment to Article 205 of the Civil Code revised the article to the following: “If the agreed rate of interest exceeds 16% per annum, the portion of agreement in excess of such rate is null.”

To illustrate, Article 205 of the Civil Code was established in 1929, more than 90 years ago.In consideration of significant decrease in deposit interest rates in recent years, having an interest rate as high as 20 times as the “cap on interest rates” is clearly unreasonable.The cap on agreed interest rates should also be duly adjusted based on current social status.Thus, the cap on agreed interest rates is lowered to 16% per annum.

Article 205 of the current Civil Code also stipulates that the creditor has no “claim” over interest in excess of the maximum limit of 20% per annum.Thus, in judicial practice[1], it is deemed that, if the debtor makes a voluntary payment of interest in excess of 20% and if such payment is accepted by the creditor, the debtor can no longer seek a refund from the creditor based on the rules of Unjust Enrichment. However, the Draft Amendment to Article 205 of the Civil Code revised such article to “the portion of agreement in excess of 16% per annum is null.”This means that, if the debtor makes a voluntary payment of interest in excess of 16%, since the agreement is null in relation to the portion in excess, the debtor can seek a refund from the creditor based on the rules of Unjust Enrichment.

2. Packaged measures following the lowering of interest rates

If an agreement has been reached before the amendment for an interest rate in excess of the maximum interest rate of 16% per annum, how should this be applied after the draft amendment is published and implemented?The Draft Amendment to Article 10-1 of the Enforcement Act of the Part of Obligations of the Civil Code stipulates: “The amended Article 205 of the Civil Code is also applicable to interest obligations that had been agreed before the amended Part of Obligations of the Civil Code was implemented and accrued after the implementation of the amendment.”That is, whether or not the amended Article 205 of the Civil Code applies depends on the time of “accrual of the interest.”Even if the parties had agreed to an interest rate in excess of 16% before the amendment was implemented, if the accrual of the interest took place before the implementation of the amended Article 205 of the Civil Code, there is no retrospective application.On the contrary, if the accrual of the interest took place after the amended Article 205 of the Civil Code was implemented, then the amended Article 205 of the Civil Code should remain applicable and the portion in excess of 16% is null.

Also, in consideration of the vast scope of impact from the change of agreed interest rates under the amended Article 205 of the Civil Code, it is advisable for all domains of society to have a sufficient preparatory period in response.Thus, the Draft Amendment to Article 36 of the Enforcement Act of the Part of Obligations of the Civil Code was passed to stipulate the following: “Article 205 of the Civil Code following amendment on December 29, 2020 shall be implemented 6 months after its publication.”Therefore, the newly amended Article 205 of the Civil Code will be implemented 6 months after its publication.