The United Sections of the Italian Supreme Court (Corte di Cassazione) recently handed down an important decision relating to the compounding of interest or, what is traditionally known as “anatocism” in Italy.
Since the 1990s, the courts have typically declared null and void any interest clauses in credit contracts between banks and consumers which provided for a capitalisation of interest every three months. In 1999, the Supreme Court officially declared this type of clause null and void on the basis that it infringes the Italian Civil Code (sections 1283 and 1419). The original decisions of the Supreme Court were based on the fact that those interest clauses were grounded on a mere “trade usage”. Moreover, the Supreme Court consistently declared that these interest clauses are not binding during the period between the termination of any agreement with the bank and the paying off of any overdraft or loan facility.
The Italian banks have duly complied with these decisions over the last decade but, as the decisions did not expressly apply retrospectively, it was not possible for a client to bring an action against its bank to recover the compound interest they had been compelled to pay in the years leading up to these decisions. However, the Supreme Court’s decision no. 21095 of 4 November 2004 ruled that the right to claim compensation for monies paid under compound interest clauses should apply retrospectively.
The practical consequences are likely to be far-reaching. Customers will now be entitled to claim compensation for any compound interest paid during the last ten years or so. The banks and their representative associations are alarmed and are hoping for an about-turn by the Supreme Court (whose judgments cannot be appealed), whilst the consumer associations are beginning to make headway with the first onslaught of claims.
We will keep you informed of significant future developments in this area.