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Writer's pictureAvv. Giovanni Babino

Banking compound interest: quashed by jurisprudence, abolished by law, vain resistance by the banks



The 2014 stability law (Law 27 December 2013, n. 147), after numerous rulings of merit and legitimacy, modified the consolidated banking law. The reform proved to be epochal for all those who had taken out a mortgage, requested financing or who had simply registered liabilities in their current account.


The reform consists in fact in the abolition of the so-called banking anatocism and, specifically, «the periodically capitalized interests cannot produce further interests which, in subsequent capitalization operations, are calculated exclusively on the capital amount».


However, as always happens with good news, apparently, this provision, according to a pro-banking interpretation, would have required an intervention by the ICRC (Interministerial Committee for Credit and Savings), in order to define «modalities and criteria for the production of interest in transactions carried out in the exercise of banking activity", in the absence of which, again according to the aforementioned interpretation, the regulatory provision would not have been susceptible to immediate application.


Since it was a rare and unusual one-off prepared in favor of citizens, the provision that the inter-ministerial committee should have drawn up was slow in arriving and the regulatory provisions took on the value of a dead letter. The solution came from the issue of the order of the Court of Milan (Milan Court 25 March 2015 - Pres. Laura Cosentini - Ext. Silvia Brat.) which clarified that "The art. 120 TUB, as amended by law no. 147/2013 (so-called 2014 stability law), excludes compound interest from banking relationships; Furthermore, from the text of the provision no form of logical or temporal subordination of the regulatory data to the subsequent regulatory intervention of the C.I.C.R. emerges, even though it is referred to in the provision itself". From this it follows that banking compound interest became illegal in our legal system starting from the date of entry into force of the 2014 stability law, i.e. from 27 December 2013. The voluntas legis was further confirmed by the failure to convert in law of the art. 31 Legislative Decree n. 91/14, which had reintroduced the legitimacy of banking compound interest. In addition to the jurisprudence of the merits, the Supreme Court also subsequently intervened and, with ruling. n. 9127/15 of 06.05.2015, has definitively established the incorrectness of the compound interest practice, regardless of the time period in which the debit interest is accounted for, whether annual or quarterly.


In the civil code, anatocism is regulated in art. 1283, according to which expired interests, "in the absence of contrary uses", can only produce interest from the date on which the judicial request was proposed or as a result of an agreement subsequent to their expiry, always provided that they are due for at least six months. The phrase "in the absence of contrary uses", in order to be able to overcome the code precept, implies that it must have a normative nature. The clause which establishes the quarterly capitalization of bank debt interest is of a contractual and non-regulatory nature, with the consequent nullity of the same due to conflict with a mandatory rule. The operators in the banking sector, in fact, persisted in escaping the prohibition imposed by the law by having the accounting of interest on an annual basis, supporting to this end the existence of "regulatory uses" that legitimized the annual capitalisation of interest expense in the credit opening contract.


However, the jurisprudence of legitimacy, demolishing the banking position since there are no ad hoc rules, did not follow up on the bank's complaints, and furthermore underlined how, in historical reality, no custom or use was found in reference to the annual capitalisation of interest debtors, therefore decreeing the arbitrariness of the practice in question. Furthermore, an earlier ruling by the United Sections, which already in November 2004 observed that "any form of capitalization was illegitimate", maintaining that "it was absolutely arbitrary to draw the conclusion that, in denying the existence of regulatory uses of quarterly capitalization of debt interest, that same jurisprudence would have recognized (implicitly or explicitly) the presence of regulatory uses of annual capitalisation. Before lacking "normativity", such uses are not found in historical reality, or at least not in the historical reality of the last fifty years preceding the regulatory interventions of the late nineties of the last century: a period characterized by widespread custom (but not accompanied from the opinio iuris ac necessitatis) of quarterly capitalisation, but which does not appear to have recognized at all a custom of annual capitalization of debt interest, nor of necessary balancing with creditor interest".

 

Sources Law 27 December 2013, n. 147, Legislative Decree 24 June 2014, n. 91 converted with amendments by Law 11 August 2014, n. 116, Legislative Decree 1 September 1993, n.385

 

Milan, March 18th 2016.

Avv. Giovanni Babino

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