The Civil and Commercial Code on Interest Rate and Default Interest Rate Amendment

As the global and Thai economy have transited into an era of a low interest rate environment, this calls for the readjustment of interest rates imposed in the market. The need for readjustment has precipitated the change in interest rate levels within the legal context by way of amending the Civil and Commercial Code of Thailand (“CCC”) through the Emergency Decree, which was published in the Government Gazette on 10 April 2021. Consequently, such amendment to the CCC (“Amendment”) became effective on 11 April 2021. The key changes in the Amendment include the new interest rate on monetary debt, the new default interest rate and the calculation of default interest on debt due in installments, pursuant to Sections 7, 224, and 224/1 of the amended CCC.

Previously, the interest rate on monetary debt which has not been indicated in the agreement or provision of law would be at the fixed rate of 7.5% per annum, pursuant to the former Section 7 of the CCC. However, with the Amendment, the amended Section 7 provides that such interest rate is reduced to 3% per annum unless the interest rate has been prescribed otherwise in the agreement or by law. Furthermore, the amended rate is now considered the floating rate since it can be adjusted every three years to align with the then current economic situation by way of a Royal Decree at the consideration of the Ministry of Finance.

With regard to the default interest rate on monetary debt, the former Section 224 of the CCC also set such rate at the fixed rate of 7.5% per annum, whereas the amended Section 224 reduced the rate to that of the amended Section 7 (i.e., 3%) plus the add-on rate at 2% per annum. The amended Section 224 further stipulates that if the creditor can demand the higher rate on any legitimate grounds, such as when the default interest rate is indicated in the agreement, then such higher rate shall continue to be applied.

Furthermore, before the Amendment, there was no law that determines or sets the calculation method for the interest incurred when debts are due in installments. Due to the fact that there was no standardised calculation method, the interest could be levied on the total unpaid principal amount or on other calculation methods, and not only on the specific default installments. Therefore, Section 224/1 is added as part of the Amendment in order to provide that, where debts are due in installments, the default interest shall be calculated on the due but unpaid principal amount of such default installment only; moreover, an agreement which is in conflict with this shall be void. As a result, this addition of Section 224/1 will help prevent the burden on the debtor’s part from being unreasonably high.

The key changes of the aforementioned provisions before the Amendment and after the Amendment are highlighted as follows:

The interest rates and calculation method pursuant to Sections 7, 224, and 224/1 of the amended CCC shall apply to the interest and default interest calculation of the debt, in which the interest rates are not indicated in the agreement or provision of law, or the installment payment of which is due from the effective date of the Amendment.

This is intended merely to provide a regulatory overview and not to be comprehensive, nor to provide legal advice. Should you have any questions on this or on other areas of law, please contact the following:

Nuttaros Tangprasitti
Partner

Pimsiri Harnpanicharoen
Attorney-at-Law