Recently, my elderly neighbor urgently needed money, and she borrowed 500 euros from an acquaintance. The acquaintance drafted a promissory note with usurious interest rates. The neighbor had to agree to these terms because she found herself in a hopeless situation. Now she cannot repay the debt, even though she is cutting back on everything: the monthly interest keeps accumulating, causing the debt to grow like a snowball.
It is clear that a contract signed by a legally capable adult without pressure or any influence must be honored. However, in this case, the contract was initially unfavorable for one of the parties. Does Latvian legislation recognize the concept of an initially disadvantageous transaction? And if it can be proven that a person, due to ignorance, inexperience, or being in difficult circumstances, signed a contract that is disadvantageous by definition, can one appeal to the court to annul or amend such a contract on that basis?
Answers Richard Bunk, Chairman of the Latvian Association of Lawyers
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Such situations are regulated by the norms of civil law in the Republic of Latvia. According to these norms, during the conclusion of a contract, the parties can indeed agree on the interest rates, and if a legally capable adult voluntarily signed the contract, they are obliged to fulfill it.
However, the interest rates must correspond to fair business practices — accordingly, they cannot be disproportionate and exceed the principal amount; in this specific case, if the debt amount is 500 euros, the total maximum amount to be repaid cannot exceed 1000 euros.
If the terms of the contract are obviously unfavorable for one of the parties (in this case, excessively high interest rates), it may be possible to challenge these terms in court. Grounds for filing a lawsuit may include, for example, the following arguments:
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disproportionate interest rates (i.e., significantly exceeding ordinary market rates);
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one party taking advantage of the difficult circumstances faced by the other party; in this case, the person who received the loan (or their representative) will need to prove that the individual was in a difficult life situation and had no other means to resolve their problems, as well as that the lender was aware of this and exploited the borrower's distress;
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by agreeing to terms that are knowingly unfavorable to themselves, the borrower was unable to fully comprehend the consequences of such a contract. However, in this case, it will be necessary to provide the court with medical documents indicating that at the time of the transaction, the borrower had mental or cognitive issues and poorly understood the content of the contract.
If such a lawsuit is filed and the court finds the plaintiff's arguments convincing and justified, the court may:
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Recognize the interest rates as excessive and reduce them to a reasonable level by its decision.
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Leave only the principal debt or an amount close to it.
In any case, it is better not to wait until the debt becomes unmanageable, but to take the initiative: to appeal to the court with a claim either to declare the terms of the contract invalid or to reduce the interest rates.
