Usury Rates and Their Impact on European Credit Cards and Revolving Credit

In this commentary, we look at the current usury legislations or equivalent regimes applicable to credit card and revolving credit markets across select European Union countries and the United Kingdom. We also examine how usury legislations may affect securitisation structures and credit rating considerations.

Key highlights include:
(1) In recent years, there has been a stronger trend toward using usury laws as a consumer protection measure in Europe.
(2) There are considerable variations in the usury laws across European countries in terms of regulation, implementation, and scope.
(3) Usury laws concerning credit card and revolving credit lending affect credit rating considerations in several ways:
-- Lower usury rates would compress or limit the receivables yield rates, affecting the excess spread available to cover losses if no other mitigants are in place.
-- Lenders may not be able or willing to adjust the annual percentage rates quickly or frequently because of the prescribed usury rate in the legislation or market competition. Consequently, lenders may try to restrict their lending activities while waiting for the usury rates to adjust (upwards).
-- Usury claims, if valid, may expose the portfolio to a potentially large amount of void receivables.