Application of changes in applicable law to credit relationships

On May 4, 2022, amendments to the Usury Law (the “Law”), the Civil Code and the Commercial Code entered into force, which were approved by the Congress of El Salvador in order to strengthen the framework legal, thus in order to prevent and sanction behavior that infringes the economic and property rights of individuals in their credit relationships.

The amendments to the Civil Code and the Commercial Code aim to establish that credit obligations contracted with usurious interest will be null and void with respect to the agreed interest constituting usury. On the other hand, the amendments to the law seek to establish the powers of the Superintendence of the Financial System (Superintendencia del Sistema Financiero, “SSF”) and the Consumer Protection Authority (Defensora del Consumidor, “DC”) in as regulators and supervisors of compliance with the law, as well as incorporating offenses and penalties for non-compliance, mainly regulating the following aspects:

Powers of SSF and DC.

The SSF and the CD, ex officio or at the request of a party, may verify compliance with the law and the technical regulations issued for this purpose by the Central Reserve Bank (Banco Central de Reserva, “BCR”), for which they can seek support from other entities such as the Superintendency of Commercial Bonds and the Attorney General’s Office.

Administrative penalties.

Violations of the law will be sanctioned by a fine, the amount of which will be determined according to criteria such as the seriousness of the violation, the economic capacity of the offender, the degree of intentionality, the damage caused, among others, establishing that:

  • For supervised creditors, fines will be imposed through the SSF, up to 1,000 minimum wages, without prejudice to other penalties that may be determined in accordance with the Financial System Supervision and Regulation Act.
  • For unsupervised creditors, fines will be imposed by the DC Sanctions Court, up to $500 minimum wage, without prejudice to other penalties that may be determined pursuant to consumer protection law.
  • In the event that it is determined that collective or diffuse interests are affected, the fine will be established from 500 to 1200 minimum wages

On the other hand, the withdrawal of any promotion or advertising establishing rates higher than those authorized by law may be ordered, as well as the cessation of usurious practices.

For the imposition of sanctions, the procedures established in the Consumer Protection Law will be applied for unsupervised entities; and the procedures established in the Financial System Supervision and Regulation Act will be applied for the supervised entities.

Special Provisions.

The judges of the Republic, seized of a claim by the executive arising from the non-payment of credits, must request from the BCR a report indicating whether the creditor is registered in the register of creditors and, if not, notify the creditor so that, within 12 working days from the notification of this resolution, the creditor registers with the RBC. If the creditor fails to register, the judge informs the DC or the SSF, as the case may be.

The RBCs will have 90 working days from the date of entry into force of the amendments to adapt the corresponding technical standards.

Parties required to comply with the law must submit information on their credit activity in accordance with the amendments, starting from the second half of the calculation of the maximum statutory rates for the year 2022, which includes the months of June to November 2022.

The decrees containing the aforementioned modifications were approved by the Congress of the Republic of El Salvador on February 22, 2022 and published in the Official Gazette on April 26, 2022.