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EL SALVADOR - LAW AMENDMENTS TO BE CONSIDERED FOR DOCUMENTING CREDIT OBLIGATIONS

May/2022

On April 26 of this year, the Legislative Decrees No. 293 containing amendments to the Law against usury (the "Law"); No. 294 containing amendments to the Civil Code and No. 295 containing amendments to the Commercial Code were published in the Official Gazette, all with the purpose of having an updated legal framework and adopting the pertinent measures to avoid abusive practices in credit relationships.

The amendments to the Law are principally aimed to establish 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 to incorporate infractions and sanctions for its non-compliance; also, the amendments to the Civil Code and the Commerce Code are aimed to establish that credit obligations agreed with usurious interest will be null and void as to the interest agreed upon that constitutes usury.

Among the main amendments to the Law, it is established that the following, among others, are considered as infractions: charging or consigning in credit contracts interest rates higher than those established in the Law; not registering in the creditors' registry of the Central Reserve Bank ("BCR"); not having credit operations segmentation policies and charging interest on interest, establishing also that any agreement referring to interest on interest will be null and void.

The amendments provide that infractions to the Law will be sanctioned with a fine, the amount of which will be determined in accordance with criteria such as the seriousness of the infraction, economic capacity of the offender, damage caused, establishing that:

 

  • For supervised creditors, fines will be imposed through the SSF, of up to 1,000 minimum wages, without prejudice to other sanctions that may be determined in accordance with the Law of Supervision and Regulation of the Financial System.
  • For non-supervised creditors, fines will be imposed through the sanctioning court of the CD, of up to 500 minimum wages, without prejudice to other sanctions that may be determined in accordance with the Consumer Protection Law.
  • In the event that it is determined that collective or diffuse interests are affected, the fine will be established from 500 up 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 as to whether the creditor is registered in the creditors' registry and if not, shall warn the creditor so that within 12 business days from the notification of such resolution, the creditor registers in the BCR. If the creditor does not proceed with the registration, the judge shall inform the CD or the SSF, as the case may be.

The BCR will have 90 business days from the effective date of the amendments to adapt the corresponding technical norms.

The decrees containing the aforementioned amendments will become effective 8 days after their publication in the Official Gazette.

 

Julissa Castro
Associate
julissa.castro@ariaslaw.com


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