Should loans charging more than 57% interest be prohibited? A legislative bill seeks to answer that by defining a usury rate in Costa Rica.

The goal is to define an interest rate that would protect consumers from excessive charges.  The Central Bank warned legislators that if they insist on setting a limit on interest rates, this should be reasonably high so that it does not lead to exclusion.

The maximum rates discussed is between 51% and 63% under the methodologies suggested by the Central Bank to the Legislative Commission, or the midpoint between the two at 57%.

The 57% cap, if adopted, would make it illegal to lend money at higher rates, including sales of household appliances. The cap, however, may have an undesired effect, that of excluding persons considered risky from the formal credit (banks, financial institutions, credit cards, etc) system.

Although the banking sector has resisted a limit of usury, in this case, the Chamber of Banks and Financial Institutions (Cámara de Bancos e Instituciones Financieras) considers the Central Bank proposal as reasonable.

Defining a usury rate would allow judges to sanction abuses, something that has not been possible so far because there is no legal limit to interest rates.

However, the proponents of the legislative bill argue that Central Bank proposal is very high, their idea is of establishing a limit of around 30%, or around 25 percentage points above the Basic Passive Rate.

The risk is that people who are excluded will resort to informal mechanisms, such as illegal loans which in all cases charge more excessive rates than those offered in the financial market.