Possible interest rate changes for business transactions under Thai law

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Background

The Law Reform Commission of the Office of the Council of State (the “Commission“) Held a public hearing on the bill amending the Civil and Commercial Code (“CCC“) With regard to the provisions relating to interest rates (the”Bill”) January 18, 2021. The Commission aims to change the interest rate of the CCC, which is not the interest on loans from financial institutions, to adapt to the current economic situation, since Thailand has adopted the current interest rate of seven and a half percent (7.5%) per annum for more than ninety (90) years. Following the public hearing, the Commission concluded the details of the bill at the end of February 2021, details are provided in this bulletin.

Details of the new interest rate under the bill

The significant changes are summarized as follows:

1. Proposed modification: standard interest rate (article 7 of the CCC)

Currently, unless the agreement or laws provide otherwise, the fixed interest rate of seven and a half percent (7.5%) per annum is applicable to the agreement.[1].

Under the bill, the standard interest rate is to be reduced to three percent (3%) per annum. However, said new standard rate of three percent (3%) is likely to increase or decrease by Royal Decree, which may be issued from time to time, to align with the economic situation. In addition, this standard rate is subject to revision every three (3) years by the Ministry of Finance taking into account the average rate, between the interest rate on deposits and the interest rate on commercial bank loans.[2].

2. Proposed modification: default interest rate (article 224 of the CCC)

Currently, in the event of default by a debtor, a creditor can automatically charge default interest at the rate of seven and a half percent (7.5%) per annum, unless there are other legal grounds. allowing the creditor to charge interest at a higher rate.[3].

Under the bill, the new default interest rate would be the sum of (i) the standard interest rate prescribed in section 7, and (ii) additional interest of two percent (2%) per year. Therefore, should the bill come into force, the new default interest rate would be five percent (5%) per annum, which is the standard interest rate of three percent (3%), plus two percent (2%) added.

Like the proposed standard interest rate as stated in point 1 above, this default rate may be changed due to the rate change in accordance with section 7. In addition, it should also be noted that the creditor always has the right to charge interest at a higher rate for other legitimate reasons[4].

3. Proposed clarification: Late interest rate in the event of payment in installments (article 224/1 of the CCC)

The bill also clarifies default interest in the event that a debtor is under an obligation to make payment of the debt in installments. The newly introduced provision of article 224/1 of the CCC prescribes that in the event that a debtor does not make any installment payments, the obligee is entitled to demand default interest on the basis of the principal amount. of this down payment in other words, the creditor will no longer be able to legally invoice the default interest on the basis of the total amount of the outstanding principal of the debt)[5]. In this regard, if there is a provision in the agreement that is contrary to this calculation of default interest under article 224/1, this provision is void.

As a note, this proposed article 224/1 may not be applicable in the case of the acceleration of the principal where all the remaining installments are accelerated and become due due to the occurrence of a default of payment of any installment as prescribed in the agreement (in other words, after default, the obligee does not allow the obligor to continue payment of the deposit and subsequently requests payment of the remaining installments in full).

Please note that the new interest rate provided for in the bill will only be applicable for debt or for which payment in installments is due on the effective date of the invoice.

In conclusion, the bill indicates a good intention to improve the law in order to be in harmony with the social context and economic trends, particularly with regard to interest rates. At present, the bill has passed the stage of public hearings and will be proposed to the Cabinet meeting for further consideration and approval. We will be monitoring closely and keeping you updated on the progress of this matter.

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