El Salvador – Legislative changes to consider when documenting credit obligations

On April 26 of this year, Legislative Decrees No. 293 containing amendments to the Usury Law (the “Law”); No. 294 containing amendments to the Civil Code and No. 295 containing amendments to the Commercial Code have been published in the Official Gazette, all with the aim of having an updated legal framework and adopting the relevant measures to avoid abusive practices in credit relationships.

The amendments to the law are mainly aimed at establishing the powers of the Superintendence of the Financial System (“SSF”) and the Consumer Protection Authority (“DC”) as regulators and supervisors of compliance with the law, as well as ‘incorporate violations and penalties for non-compliance; on the other hand, the amendments to the Civil Code and the Commercial Code aim to establish that the credit obligations contracted with usurious interest will be null and void with respect to the agreed interest constituting usury.

Among the main amendments to the Law, it is established that the following, among others, are considered offences: charging or recording in credit contracts interest rates higher than those established in the Law; not register with the Central Reserve Bank (“CBR”) creditors register; not having policies for segmenting credit operations and charging interest on interest, also establishing that any agreement referring to interest on interest will be null and void.

The amendments provide that violations of the law will be punished 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 damage caused, 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 CD sanctions court, up to 500 smic, without prejudice to other sanctions that may be determined in accordance with the law on consumer protection.
  • 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.

As a special provision, it is established that the judges of the Republic, when receiving an executive claim derived 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, in the otherwise, , warns the creditor so that, within 12 working days from the notification of this resolution, the creditor registers with the BCR. If the creditor does not register, the judge informs the CD 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.

The decrees containing the aforementioned modifications will enter into force 8 days after their publication in the Official Gazette.