This content is from: Local Insights


Bank loans deemed void for usurious interestStudio Legale Beltramo, Rome

A huge amount of restitution demands are going to be filed with Italian banks by the consumers' associations, following the decision of the Supreme Court No. 14899/2000 in respect to fixed-rate loans.

Under this decision, fixed-rate loans exceeding limits of interest rate provided by the law will be deemed void, even if they were entered into before Law No. 108 of March 7 1996 (Anti-usury Law) came into effect.

The Anti-usury Law was issued by Parliament to amend regulation of the crime of usury, as provided for by Art. 644 of the Penal Code. Under this law, an interest rate is deemed usurious when increased by one half over the average global actual rate, as specified by the Ministry of the Treasury's survey, which is published from time to time in the Official Gazette.

Anti-usury Law should have been applicable in principle only to contracts entered into after the law came into effect. But the Supreme Court has attributed, through this decision, a retroactive validity to the law, in contrast with Art. 11 of Provisions on the Law in General. It means that an interest rate which fell within the limits authorized at the time the loan agreement was entered into, can become an usurious rate if it exceeds the limits set out by the Ministerial Decree.

This decision, which is in line with the principles stated in two previous decisions of the Supreme Court with regard to the payment of compounded interest on overdrawn current accounts, could introduce areas of great uncertainty and financial risk. Banks will not be inclined to grant long-term loans at a fixed rate due to the fear that the fixed rate, in line with the parameters on usury at the time of the entering into of the loan, may, as a consequence of the possible future decrease of interest rates, fall within the black list of contracts, with interest rates exceeding the authorized levels. This risk might also affect foreign banks which operate in Italy.

Last but not least, the forced early redemption of bonds issued in connection with loans may have a negative effect on the financial markets, and trigger a sudden standstill to those securitization transactions which have been recently implemented under Law 130/99.

The Bank of Italy is now requesting the government to intervene by issuing a law aimed at regulating the issue of interest on loans, while the Italian Banking Association is to file a recourse on the subject to the EU Commission.

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