Interest is a form of compensation agreed upon by a borrower in a loan agreement to be paid to the lender. This compensation serves as a return for the lender providing the loan. Legally, interest is not strictly limited to monetary value, and can take the form of commodities such as rice, sugar, or salt, as mutually agreed upon by the parties. However, interest is commonly calculated in monetary terms.
In loan agreements, especially those outside formal financial institutions, borrowers often find themselves in a disadvantaged position. Lenders can exploit this imbalance by imposing unfair terms within the loan contract. Due to the urgent need for funds, borrowers are frequently compelled to accept these terms, including exorbitant interest rates. Consequently, many borrowers become unable to repay both the principal and accrued interest, leading to potential cases of unjust debt collection, intimidation, and even the use of force.
Due to the aforementioned circumstances, government agencies have enacted legal measures to regulate and prevent exploitation. Specifically, regarding the determination of interest rates in loan agreements, the Prohibition of Excessive Interest Rate Act of 1932 was enacted. However, this act was subsequently repealed and replaced by the Prohibition of Excessive Interest Rate Act of 2017.
The provision stating, “It is prohibited to charge interest exceeding 15% per annum. If the contract stipulates an interest rate higher than that, it shall be reduced to 15% per annum” is an instance where the law sets a ceiling on the interest rate that a lender can charge a borrower. This is to prevent exploitation and unfair profiteering, which could cause hardship to the borrower. Therefore, a lender cannot stipulate an interest rate in a loan contract exceeding 15% per annum. If an interest rate higher than 15% per annum is stipulated, such as 18% or 20% per annum, such stipulation shall be void. However, only the portion exceeding 15% shall be void; the lender may still enforce the loan agreement up to 15% per annum. Subsequently, the Excessive Interest Rate Prohibition Act of 2017 was enacted to replace this provision.
Shall be punished by imprisonment not exceeding 2 years or a fine not exceeding 200,000 Baht or both.
Therefore, if an individual lends money and agrees to charge interest exceeding 15% per annum, the interest agreement is illegal and constitutes a criminal offense. As a result, the entire interest becomes void.
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With over 12 years of legal experience, we are the trusted experts you can rely on for all your legal needs. Our expertise spans across various legal fields, including civil and commercial law encompassing contracts, litigation, and legal proceedings; labor law to help your business avoid disputes; as well as family law, inheritance law, consumer protection law, intellectual property law, criminal law, and other legal matters. We also provide comprehensive legal consultation and registration services.