On Jan. 13, the Supreme Court found in favor of an individual who had sued a consumer credit company for charging too much interest. By doing so, the court rejected the controversial "gray zone" that such companies take advantage of in their business.
According to the Interest Rate Restriction Law (IRRL), creditors cannot charge more than 20 percent annual interest on a loan, even though the law does not stipulate penalties for violations. However, the Investment Report and Interest Rate Law, which allows interest rates of up to 29.2 percent under certain conditions, does have penalties attached.
The gray zone is this area between 20 and 29.2 percent, and consumer credit companies regularly impose interest in this zone by getting borrowers to sign contracts that permit the companies to charge higher interest under certain circumstances. For example, when a debtor is late in his payments and must pay a lump sum, he can be charged higher interest on the lump sum.