Insights

Ningbo spouse borrowed usury, will the excess be repaid?

Ningbo Author：LuXu WANG

My spouse has taken out a high-interest loan outside the marriage. Not much of the principal has been repaid, but the interest keeps compounding, and debt collectors are calling our home—some have even shown up in person, pressuring us to pay. First, let me state a clear conclusion: Interest in excess of four times the quoted market rate (LPR) of the one-year loan at the time of contract formation is not protected by law.As for the portion of interest that is “excessive” in usurious loans, whether it is repaid by the spouse alone or whether the creditor sues to hold you liable, the court will not uphold such claims. But this does not mean that "you don't have to pay back a penny": the principal and the legal interest within four times are usually still to be paid back.

In other words, usury does not mean “you can borrow and not repay”; rather, it means “you don’t have to repay the excessive portion.” Which interest rates are considered excessive, how should the excess be handled, are you responsible for your spouse’s debts, can you reclaim overpayments, and what should you do if you’re being sued? We’ll address each of these points one by one below.

1. Legal “red line”: Interest rates must not exceed four times the LPR.

When discussing usury, we must first identify the “red line,” which is defined by two tiers of regulations.

The first layer is Article 680, paragraph 1 of the Civil Code:Usury is prohibited; the interest rate on loans shall not violate relevant state regulations.This is a mandatory provision regarding validity; if it is violated, the corresponding interest agreement will not receive legal protection. The second layer of

is the Provisions of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases. Article 25: If the lender requests the borrower to pay the interest according to the agreed interest rate in the contract, the people's court shall support it, Except where the mutually agreed interest rate exceeds four times the quoted market rate (LPR) for the one-year loan at the time the contract is established. The “one-year Loan Prime Rate” referred to here means the one-year LPR published monthly by the National Interbank Funding Center authorized by the People’s Bank of China, effective August 20, 2019. More than four times, is commonly known as "usury" interest.

How it is calculated: using the LPR at the time the contract was formed as the benchmark.

The formula can be simplified as: Protected interest rate cap = one-year LPR in the month of contract formation × 4. For example, the contract is established in August 2021, the one-year LPR for the month is 3.85 per cent, four times is 15.4 per cent, and the portion of the annual interest rate over 15.4 per cent is unprotected; if the LPR for a given month is 3.45 per cent, four times is 13.8 per cent. Discount the monthly interest rate only need to divide the annual interest rate by 12, still to 3.85 per cent, for example, four times the corresponding monthly interest rate of about 1.28 per cent; and the common "monthly interest rate of 2 points" "monthly interest rate of 3 points" into an annual interest rate of 24 per cent, 36 per cent, are far more than four times the LPR.

Special reminder:When determining whether the interest rate exceeds the statutory limit, the LPR in effect at the time the contract was concluded shall be used, rather than the LPR prevailing at the time of repayment or at the time of filing a lawsuit. This "four times LPR" rule was established when the judicial interpretation was revised in 2020, replacing the old standard of "24% of the annual interest rate is protected and more than 36% is invalid". The accounting must be based on the month when the contract is established.

An Algorithm in a Judgment

The Daxing District People’s Court of Beijing Municipality demonstrated this algorithm in the civil lending dispute case between Shi and Sun. The principal amount of the case is $1.5 million, with an agreed monthly interest rate of 1.8 per cent (21.6 per cent per annum), and the contract was established on August 25, 2021, with a one-year LPR of 3.85 per cent and four times 15.4 per cent for the month. The court found that the interest rate agreement exceeding 15.4 was invalid. For the interest already charged at 1.8 during the loan period, the overcharged part was offset against the principal at the expiration of the loan period: the borrower paid 1.8 for 6 months, totaling 162000 yuan, and 15.4 should be 115500 yuan. After the overpaid 46500 yuan was offset against the principal, the remaining principal was reduced from 1.5 million yuan to 1.4535 million yuan, and then overdue liquidated damages were charged at the annual interest rate of 15.4. This case shows that:The interest agreement for the portion exceeding the statutory limit is invalid; any interest already paid in excess may be offset against the principal upon settlement.

2. How are portions exceeding four times the LPR handled under the law?

After finding the red line, we should see how to deal with the excess part from the two directions of "unpaid" and "paid.

1. Unpaid excess interest: Not supported by the court.

If the agreed-upon interest rate exceeds four times the LPR, and the borrower has not yet paid the corresponding interest, the court will not support the lender’s claim to recover that portion of interest.If a creditor presents a promissory note with interest exceeding four times the LPR, any amount above that threshold is not legally protected.This is the most direct effect and also the first line of defense in a rebuttal.

2. Overpaid excess interest: may be requested to be refunded or applied against the principal.

Even if the borrower has already paid the excess amount, it is not “money down the drain.” In practice, there are typically two approaches: first, offsetting the excess interest against the outstanding principal—this was the case in the dispute between Shi and Sun; second, seeking a refund by claiming unjust enrichment for the overpaid amount. The rationale is that, since the exceeding portion is already invalid, the lender’s acquisition of that portion of the funds lacks a lawful basis. The specific course of action to take should be determined in light of the evidence and the litigation strategy.

3. Items other than interest will also be “combined for calculation.”

Lenders often disguise excess interest as “service fees,” “consulting fees,” “management fees,” “penalty charges,” “late payment interest,” and other such charges in an attempt to circumvent the interest rate cap. Judicial authorities generally hold that determining whether a loan constitutes usury cannot be based solely on the nominal interest rate; all disguised fees, such as default penalties, service charges, brokerage fees, and security deposits, must be taken into account. Article 29 of the Regulations on Private Lending also makes it clear that overdue interest rates, liquidated damages or other expenses may be claimed together,However, the portion that, in total, exceeds four times the one-year LPR prevailing at the time the contract was formed shall not be supported by the people’s courts.. “Changing the name to charge fees” still does not cross the red line.

Should I pay back the loan sharks borrowed by my 3. spouse?

This is the most central issue of this paper. Answer: First judge whether this debt is a joint debt of husband and wife, and then talk about how much to pay. The key depends on how Article 1064 of the Civil Code is applied.

1. Three Categories of Marital Joint Debts

Article 1,064 of the Civil Code categorizes marital joint debts into three types.

  • Joint debt, joint signing. A debt based on a joint signature by both spouses, or a subsequent recognition by one of the spouses, etc., based on a joint intention. If you sign a promissory note, or later acknowledge the debt via WeChat or text message by saying, “I recognize this debt,” it may be deemed a joint liability.
  • The needs of daily family life. Debts incurred by one party in their own name during the subsistence of the marital relationship for the needs of daily family life. Such as buying vegetables, paying utilities, daily medical treatment, children's education of the loan, the law directly presumes sharing, no additional proof of creditors.
  • Those beyond the daily needs of the family do not count as joint debts in principle. The debt that one party bears in his own name and exceeds the daily needs of the family does not belong to the joint debt of husband and wife;However, this does not apply if the creditor can prove that the debt was used for the common life of the spouses, for their joint production and business operations, or was incurred pursuant to a joint expression of intent by both spouses. This paragraph is the most critical: large loans are first presumed to be personal debts, and the burden of proof is placed on creditors.

2. Usury is often "beyond the needs of daily life"

The amount of usury is usually very large and the interest rate is abnormally high. The purpose of borrowing money is often the spouse's personal turnover, investment, repayment of gambling debts and even "routine", which can hardly be described as "the daily needs of the family". According to the third rule,For a creditor to hold you jointly liable for the debt, it must prove that the funds were used for the couple’s common living expenses or joint business operations, or that you participated in the borrowing or subsequently ratified the loan—thereby placing the burden of proof on the creditor. It is not enough to prove that "the loan took place in marriage.

Another case can be used for comparison. In private lending disputes such as Zhao Moumou and Niu Moumou tried by a grass-roots court in Inner Mongolia, the loan was jointly signed by the husband and wife on the IOU. The court accordingly determined that the joint debt of the husband and wife (family) was ordered to repay together, and made it clear that the interest rate was calculated in sections of "four times the one-year LPR (13.8 per cent per annum) before August 19, 2020. It can be seen that: those who sign together and express their common intention shall be returned; if only one party signs and has nothing to do with family life, the other party may not return in principle. The word "signature" is often a watershed.

3. Not used for the family part, you can not return

If you don't know about your spouse's loan, you don't sign or ratify it, and the money doesn't go into your family's pocket, this usury belongs to your spouse's personal debt in principle, and you don't need to repay it for him. If the funds are used by one spouse for illegal or criminal activities such as gambling or drug use, not only do they not constitute marital debt, but the loan itself may also be deemed invalid.

also need to be objectively reminded: if the place of the money in individual cases is not clear, the court may still make a disadvantageous determination to the non-borrowing party. "Where the money is used" is not only a fact that creditors must prove when they claim co-debt, but also a fact that you have to fight when you defend, and the fixation of evidence often determines success or failure. In addition, the husband and wife may agree in writing that the property after marriage shall be owned by each other, so that the debt incurred by one party to the outside world, and if the relative knows the agreement, it shall be paid off with his personal property.

One final point: marital joint debts may only be determined in the trial proceedings and not in the enforcement proceedings. Creditors cannot directly list the spouse who has not been sued as the person to be executed in the execution process; if they are accidentally added, you have the right to object to the execution.

How to calculate the 4. "beheading interest", "service fee" and "penalty interest"

The tricks of loan sharks are rarely listed under the “interest rate” heading; instead, they are spread across various charges, all of which must be taken into account when calculating the true cost.

1. Front-end interest: The principal is calculated based on the actual amount received.

"beheading interest" is to deduct a part of interest when lending money: when you borrow 100000 yuan, you actually only get 80000 yuan, but the debit note says 100000 yuan. Article 26 of the Regulations on Private Lending clearly states:The loan amount stated in debt instruments such as promissory notes, receipts, and IOUs is generally recognized as the principal; if interest is deducted from the principal in advance, the people’s court shall recognize the actual amount lent as the principal.The portion that was withheld does not constitute a loan and does not accrue interest. Be sure to check the actual amount of the account against the bank when accounting.

2. All fees: to be calculated collectively and subject to the fourfold cap.

If the "service fee", "consulting fee", "management fee", "intermediary fee", "security deposit" and so on are actually the disguised collection of interest, the court will combine them with the interest to determine whether they exceed four times the LPR. Lenders cannot circumvent the cap by "splitting the name", the part of the total burden exceeding the red line is also not protected.

3. Penalty interest, liquidated damages: the total amount can not exceed the upper limit

After the loan is overdue, the lender often claims high penalty interest and liquidated damages. Article 29 of the Regulations on Private Lending stipulates that the lender may claim overdue interest, liquidated damages or other expenses, or may claim them together,However, the portion exceeding four times the one-year LPR prevailing at the time the contract was formed shall not be supported by the people’s courts.. If there is an agreement on the overdue interest rate, from its agreement, it is also limited to no more than four times the LPR. Regardless of the split into several items, the total cap you can afford is still four times the LPR.

5. professional lenders and illegal lending

Some high-interest loans are not made by acquaintances; rather, they are extended by “professional lenders” who specialize in this business. At this point, in addition to the interest rate exceeding the statutory limit, the contract itself may also be deemed invalid due to its illegality.

1. What is a professional lender

Article 53 of the Minutes of the National Working Conference on Civil and Commercial Trial of Courts (Nine Minute) stipulates that: the private lending behaviors of legal persons, unincorporated organizations and natural persons who have not obtained the lending qualification according to law and take private lending as their business shall be recognized as invalid according to law;If the same lender repeatedly engages in compensated private lending transactions multiple times within a certain period, they may generally be deemed a professional loan provider. The main points of judgment are: no lending qualification, for profit-making purposes, lending to non-specific objects in society, and multiple and repetitive. The higher people’s courts in regions where private lending is active, or the intermediate people’s courts authorized by them, may also formulate more specific criteria for determination.

2. The contract may be invalid.

Article 13 of the “Regulations on Private Lending” lists six circumstances under which a contract is invalid, the third of which is“A lender who has not obtained the requisite lending license in accordance with the law, and who provides loans to unspecified members of the public for profit.”. In addition, the contract is also invalid if the lender obtains the loan on loan from a financial institution, obtains the fund on loan by illegally absorbing deposits, etc., the lender knows or should know in advance that the borrower still provides the loan for illegal crimes, violates the mandatory provisions of laws and administrative regulations, and violates public order and good customs. After a contract is declared invalid, the agreed-upon interest is not protected; typically, only the return of the principal is supported, and compensation for the loss due to the use of funds may be granted at the court’s discretion.

3. Criminal Risk

In serious cases, it may also constitute a criminal offense.According to the Opinions on Several Issues Concerning the Handling of Criminal Cases of Illegal Lending by the Two Highs and Two Departments, in violation of national regulations, without the approval of the regulatory authorities or beyond the scope of business, loans are regularly issued to unspecified objects in society for the purpose of profit, disrupting the financial market Order, if the circumstances are serious, shall be convicted and punished for the crime of illegal business operations; here "frequent" refers More than 10 times of lending funds to an unspecified number of people by borrowing or other names within 2 years. If it is accompanied by violent collection, illegal detention, extortion, illegal acquisition of citizens' personal information, etc., it may also be suspected of other crimes, and you can report to the public security organs when you encounter clues.

How to respond to the defense when the 6. is sued

If the creditor has taken you or your spouse to court, don't panic, let alone be absent-the judgment in absentia is likely to make you liable without knowing it. Organize the defense around the following points.

1. Points of Defense

  • Interest rate exceeds the limit. First calculate the contract at the time of the establishment of the one-year LPR multiplied by 4 to get the upper limit, more than part of the claim is not protected.
  • It is not a joint debt. Claim that the loan is not used for family living together, joint production and operation, you have not signed, not ratified, Push the burden of "proving that the debt is a joint debt" back to the creditor.。
  • The beheading interest is deducted. Check the flow to see the actual amount of the account, advocate the actual loan amount to determine the principal.
  • Payments already made are to be deducted. List the principal and interest paid on a case-by-case basis, claiming that the excess is credited against the principal or returned.

2. Evidence and counterclaims

Focus on collecting and submitting: bank transfer, WeChat and Alipay (to prove the actual receipt and repayment); debit notes and contracts (to prove the agreed interest rate and name); chat records, call recordings (to prove the purpose of borrowing and whether you know it or not); household expenditure vouchers (to prove that the debt has nothing to do with the family).If interest exceeding the statutory limit has already been paid, it may be advisable to file a counterclaim seeking reimbursement of the overpaid amount or its offset against the principal. It needs to be stated that the obligation to return the principal usually still exists, and the defense focuses on "interest over limit" and "not joint debt", rather than denying the loan itself.

3. Even during the execution phase, you should not be arbitrarily implicated.

Joint debts of spouses shall be determined in the trial proceedings and may not be determined in the enforcement proceedings. The creditor cannot directly list the spouse who has not been sued as the person to be executed in the execution link; if it is added, it can raise the execution objection according to law.

7. I’ve already paid more—what should I do?

If you have already paid a substantial amount of interest at a high rate and wish to mitigate the losses, you can pursue two avenues.

First, it advocates for restitution or set-off. More than four times the LPR interest agreement is invalid, the lender to obtain this part of the lack of legal basis, the payment can request the return or in the settlement of the principal, Shi and Sun a case that the overpayment of interest offset the principal.

Second, pay attention to timeliness and segmentation rules. The three-year ordinary statute of limitations applies to claims for the return of unjust enrichment, from the date on which the right and the obligor were known or should have been known, and the overdue claim may be rejected. In addition, contracts signed before or after August 20, 2020 also apply the "segmentation rule": if the contract was established before that date, the portion before August 19, 2020 may be calculated according to the judicial interpretation at the time, and the subsequent portion shall be subject to the interest rate protection standard at the time of prosecution.

8. Practical Recommendations

  • Do not sign and acknowledge debts without careful consideration. Don't sign your spouse's IOU, loan contract, repayment promise, don't be a guarantor, and don't use WeChat or SMS to promise "I'll pay it back". A polite statement may be regarded as "ratification".
  • Keep your proof of payment. For each repayment, prefer bank transfers and retain the transaction records along with the purpose noted; if paying in cash, be sure to request a receipt. In the future, any claims for set-off or refund will rely entirely on these vouchers.
  • Be wary of chain guarantees and order transfers. Do not easily guarantee new loans for your spouse or others, nor sign documents of unclear origin; once you do, the liabilities could far exceed what you anticipate.
  • Cut losses promptly and respond to lawsuits in a timely manner. If you find that your spouse is deeply involved in usury, on the one hand, you should fix the evidence and protect the family property. On the other hand, you must appear in court to respond to the lawsuit. Don't let the default judgment take the responsibility.

9. Frequently Asked Questions

1. If my spouse took out a high-interest loan, am I required to repay the portion that exceeds four times the LPR?

No need. Interest agreements that exceed four times the one-year Loan Prime Rate (LPR) in effect at the time the contract was formed are not protected; regardless of who bears the cost, the portion exceeding this limit will not be upheld by the courts.

2. I was completely unaware and didn’t sign anything—do I still have to repay it?

In principle, it’s not necessary. A debt incurred by a party in the name of an individual that exceeds the daily needs of the family is not a joint debt, unless the creditor can prove that the money was used for the husband and wife to live together, jointly produce and operate, or you later recognize it, and the burden of proof is on the creditor.

3. How much is the principal when the 100000 is written and the 80000 is actually received?

Determined based on the actual loan amount. If interest is deducted in advance from the principal, the court shall take the actual amount lent as the principal; the portion deducted as “front-end interest” shall not be counted as principal and shall not accrue interest.

4. Can the overpaid interest be recovered?

It can be asserted. An agreement on excessive interest is invalid; the portion already paid may be requested for return or may be offset against the principal upon settlement; however, the three-year statute of limitations should be observed.

5. If “service fees” and “penalty clauses” are listed separately, are they no longer subject to the four-times limit?

No. The court will consolidate various fees and interest charges; any portion exceeding four times the LPR will still not be protected.

6. What differences would there be if the other party is a professional lender?

If it is identified as a professional lender, its loan contract may be invalid, and the agreed interest is not protected; if the circumstances are serious, it may also constitute crimes such as illegal business operations, which can be reported to the public security organs.

10. Practical Insights from a Lawyer

After receiving the collection or summons, don't rush to pay back the money first, and don't hide blindly. The first step is to get all the loan materials of the other party-the debit note, the transfer record, the repayment flow of one's own party and the collection short message, and calculate the actual principal and the agreed interest rate accordingly. Focus on two points: one is whether there is "cut-off interest", that is, the so-called service fee and deposit deducted first when lending, which should be deducted from the principal according to law; The second is to add up the "interest", "service fee", "penalty interest" and "penalty" to convert the adult interest rate, which is more than four times the one-year LPR at the time of the establishment of the contract, which you can explicitly refuse.

If you’re the spouse being pursued for repayment, the key is to maintain the position that “this is not a joint marital debt.” Since you neither signed the loan agreement as a joint debtor nor subsequently ratified it, and the funds were not used for ordinary family expenses or joint business operations, the debt should be borne solely by the borrower. Make a strong effort to present evidence in two directions: prove that you were unaware and did not benefit, while at the same time scrutinizing whether the other party used the loan for personal purposes such as gambling or extravagance. What truly undermines the opposing party’s claims is often not the phrase “I don’t know,” but rather objective evidence such as bank statements and records of fund flows.

If you have been detained or sued, don't make a general claim in court, and claim one by one: the principal is calculated according to the actual amount, the request for more than four times the interest will not be supported, and the part that has been repaid will be returned or offset. If there are indications that the other party repeatedly engages in lending or conducts lending as a business, such facts may be raised in the defense to undermine the appearance of a legitimate loan. Timing, the sooner the accounting, the sooner the fixed capital flow, the more can avoid "the more also the more loss.