Like real estate lending, consumer credit is affected by the usury rate. Professionals, whose refinancing costs are rising, are seeing their margins squeezed by the level of the usury rate, which is always out of step with the market.
A calculation method denounced by professionals
The usury rate, which is the maximum legal interest rate a bank can charge when granting a loan, is revised every 3 months by the Banque de France. It is based on the average interest rate charged by banks during the previous quarter, increased by one-third.
For several months, professionals have been calling for a change in the calculation formula, arguing that the current one does not allow the usury rate to reflect market reality. In fact, interest rates are rising faster than the usury rate, leading institutions to refuse mortgages.
For its part, the Banque de France is sticking to its guns, insisting on the protection afforded to consumers by the usury rate. It also relies on real estate lending figures, which are showing no signs of weakening, despite warnings from the industry.
On October 1, the usury rate for home loans was raised by over 40 basis points, from 2.60% to 3.03% for loans with a term of less than 20 years, and from 2.57% to 3.05% for loans with a term of more than 20 years.
However, according to the professionals, these successive increases always come too late in relation to rapid market developments.
Consumer credit: banks aim to reduce risk
It's not just mortgages that are affected by the usury rate. Professionals are also pointing to the consequences for consumer credit: due to the current economic climate, institutions are experiencing a rapid rise in their refinancing costs, while the usury rate is evolving too slowly. As a result, their margins are being squeezed, which could lead them to refuse more and more consumer loans.
In recent months, the Banque de France has noted a narrowing between the average rate for these loans and the usury rate. In the third quarter of 2019, before the Covid-19 pandemic and the war in Ukraine, the gap between these two rates was 161 basis points for consumer loans over 6,000 euros. By the third quarter of 2020, it had fallen to 134 basis points, and by the third quarter of 2022 was just 93 basis points, with a usury rate of 4.93% and an average APR of 4%.
For the time being, however, this tightening does not seem to be having any impact on consumer credit production, where outstandings rose by 2.9% in the first two quarters of 2022. Banks would not mind a slowdown in production, but the Ministry of the Economy and Finance is making sure that access to credit is preserved.
Although they continue to grant consumer credit despite reduced margins, banks are changing their strategy, preferring to lend larger sums while reducing their risks.
To achieve this, more and more banks are resorting toopen banking, which enables them, with the customer's consent, to instantly access the history of their various accounts as soon as the loan is taken out. The most fragile applications are quickly rejected, in favor of borrowers with more secure profiles.