Extremely high interest rates and APR on consumer loans

Consumer protection against unreasonable interest rates and APR

The aim of this legislation is to protect consumers in distress (for example, due to an unexpected financial situation) from disproportionate pressure that would force them to accept unfavorable contractual terms. Such unfavorable terms typically include an interest rate or APR that significantly exceeds standard market values.

Citizens in the Czech Republic are also protected against usury by the Criminal Code under Czech legislation. The decision of the Supreme Court, file no. 3 Tdo 225/2012, clarifies that to determine whether a consumer was in distress, it is irrelevant whether the consumer caused this distressing situation themselves or whether it arose due to circumstances beyond their control. The key factor is whether the lender exploited their knowledge of the consumer's difficult financial situation and concluded a contract with them that is highly disadvantageous to the consumer as a result.

Good morals and abuse of rights

Another important argument that can be used to defend against an unfavorable consumer credit agreement is the conflict of the agreement with good morals.

In accordance with Section 580 of the Civil Code, a legal act that is contrary to good morals is invalid. Good morals are not characterized only by formal rules, but reflect social, cultural, and ethical norms. In the context of credit agreements, this means that a contract containing non-market high interest rates or APRs can be considered the result of conduct that violates the fundamental values on which our society stands.

Czech courts have repeatedly ruled that disproportionately high interest rates, which can lead a debtor to insolvency, are contrary to good morals; see, for example, the judgment of the Supreme Court in file no. 21 Cdo 1484/2004, which points out that contracts whose terms are in gross disproportion to the real value of the performance can be invalidated.

In this decision, the Supreme Court also mentions so-called "usurious interest", stating that "As a rule, the amount of interest agreed within the meaning of Section 658(1) of the Civil Code is contrary to good morals if it substantially exceeds the interest rate customary at the time of its agreement, determined in particular with regard to the highest interest rates applied by banks when providing credits or loans". This also applies to short-term loans that exploit the vulnerability of consumers.

How to defend against the enforcement of disadvantageous contracts?

If a credit agreement is concluded with extremely high interest rates or APRs that do not correspond to market conditions, it is likely that the credit agreement is invalid.

Every consumer can make a basic assessment by comparing the interest rate and APR figures specified in their contract with CNB data available in the ARAD system. For example, in February 2025, according to CNB statistics (ARAD, bank interest rates on new loans to households), the average interest rate for credit cards was 17.69% per annum, which was the highest rate among all monitored types of household loans. The average APR for new consumer loans, which is a different indicator for a different type of loan, was 8.57%.

If you find that your interest rate or APR is several times higher than market values, it is worth defending against the disadvantageous credit agreement. A consumer usually gets the opportunity to do so in court proceedings in which the lender (the credit provider or its legal successor, e.g., a debt collection agency) seeks payment of the outstanding amount, including interest and contractual penalties.

A consumer usually learns about such proceedings when the court serves them with an electronic payment order ("EPR"). In the first phase, it is possible to defend against an EPR by filing even an unreasoned opposition. However, it does not pay to delay; the opposition must be filed on time.

Lack of creditworthiness assessment

One of the common problems in connection with the provision of consumer credit is the insufficient assessment of the debtors' creditworthiness. Under Section 86 of the Consumer Credit Act, the provider is obliged to verify whether the consumer is able to repay the loan before concluding the contract. If they fail to do so, the contract is invalid under Section 87(1) of this Act, and the court will take this invalidity into account even without a motion; the consumer only returns the principal within a period reasonable to their means.

In practice, however, courts generally do not fulfill this obligation, and after the lender files a petition for the issuance of an electronic payment order, the court issues the order. In such a case, the ball is in the consumer's court, and they must defend themselves. In the subsequent proceedings, the consumer has a relatively high chance of success and will only have to return the amount originally borrowed (the principal), against which all previous payments will be fully offset.

Conversely, if the consumer does not defend themselves, the described procedural benevolence of the court has serious negative consequences for the consumer. They can easily find themselves in a debt trap because they also have to pay unlawfully high interest rates and other fees. With a larger number of creditors, the only solution then becomes debt relief (insolvency/bankruptcy) for the debtor.

Unfortunately, for now, instead of protecting the weaker party as intended by the law, the system is becoming a tool for the effective enforcement of even invalid credit agreements. Filing an opposition against the issued electronic payment order on time is therefore crucial for the consumer's success in the matter.

Final summary

Extremely high interest rates on consumer loans represent a serious problem for consumers who find themselves in distress and lack the capacity to properly assess the consequences of such a commitment.

The legal framework for consumer protection against disadvantageous and often abusive terms in credit agreements is an important tool designed to ensure that consumers are not exposed to ruthless behavior by lenders.

With a timely defense, consumer credit agreements can be ruled invalid by the court, leading to a significant reduction in the originally enforced debt amount, which is often made up of disproportionately high interest, contractual penalties, and other fees in unreasonable amounts.

Finally, it is worth remembering that if you took out a loan as an entrepreneur, i.e., under a business ID (IČO) or a trade license, then a whole range of protective mechanisms do not apply to you at all. If you are dealing with a similar difficult situation and it is beyond your power to handle it on your own, you can turn to our Prague-based Czech legal team. We will be happy to help you!