This note concerns a number of controversial, topical issues regarding interest termed as “usurious”, referred to in Italian Law 108/1996 and in Article 644 of the Italian Criminal Code (1), and in particular those pertaining to default interest, to the so-called “supervening usury” and to the “floor” interest rate.
- With regard to default interest, the question of whether or not it should be included in calculation of the usurious rate is the subject of debate.
On this matter, the judgment of the Civil Supreme Court, Division I, no. 350 of 9 January 2013, recently ruled that: “in order to ascertain whether or not the interest rates provided in a mortgage contract are usurious, the conventionally established default interest must also be included in the calculation”.
This judgment confirmed an approach that has been previously asserted in case-law (see, for example, Civil Supreme Court, Division I, no. 5286/2000 or Civil Supreme Court, Division II, no. 5324/2003) (2).
More recently two decrees were issued which, on one side, confirmed the ruling of the Supreme Court, but at the same time specified its practical application. The decrees in question were issued on 28 January 2014 by the Court of Milan (3) and by the Court of Naples (4).
In both cases, the procedures were initiated by the borrowers who, in the light of the Supreme Court ruling set forth in the aforesaid judgment, requested the return or set-off of all the interest paid on the mortgage, as it was considered usurious.
The principles contained in the two decrees can be summarised as follows:
The default interest rate is of relevance for the purposes of usury;
This does not however mean that the default interest rate must be summed with the regular interest rate, as these indices must instead be verified individually;
If only the default interest rate is usurious, the Bank must only return the default interest and not the regular interest.
Hence, the courts dealing with the merits, by further developing the Supreme Court’s interpretation, have held that, even though the legislation considers the interest agreed for any purpose (and therefore even default interest) to be of relevance, it is more correct to assess the individual components separately because “they are rates that are provided for and applied alternatively”.
Accordingly, the customer may request the Bank, pursuant to Article 1815(2) of the Italian Civil Code, to return the default interest, but must continue to pay the regular interest, if lower than the usury threshold.
More recently further rulings were issued in compliance with the cited decrees, and namely by the Court of Venice (5) with decree of 26 February 2014, the Court of Trani (6) with decree of 10 March 2014 and the Coordination Committee of the Banking and Financial Ombudsman (ABF) (7) with decision no. 1875 of 28 March 2014.
- Another issue that has been the subject of intense debate and which has caused extensive conflict is that of so-called “supervening usury” (8). Controversy specifically arose following the progressive lowering of market rates, and therefore, the consequent lowering of the related threshold rates.
Italian Law 108 of 7 July 1996 does not give any indication of the time when it is necessary to verify exceeding of the threshold rate. This has led to the assertion of two opposing approaches in academic writings and in case-law.
The first approach (9) believes that verification of whether or not the interest rate is usurious must be conducted at the time the contract is concluded.
Hence the contract which, at the time of conclusion, provides for a rate that is lower than the usury threshold must be considered valid, as any subsequent variation in the threshold rates is irrelevant.
These decisions appear to be in line with the provisions of Article 1 of Italian Law 24 of 2001 (10), which stated that: “interest that exceeds the limit established by law at the time it was promised or agreed, for any purpose, regardless of the time it was paid, is considered usurious” (11).
To support this theory which considers supervening usury to be irrelevant, reference is also made to Article 1815(2) of the Italian Civil Code, which states that the clause negotiated is null and void if “usurious interest has been agreed”, and which therefore suggests that the assessment must be made when the interest is agreed.
The second approach instead favours continuous comparison and adjustment of the interest rates accrued from time to time with the successive threshold rates in force from time to time.
In other words, here the reference time is considered to be the time the interest is paid (and not the time the contract is concluded).
This theory (12) specifically sustains that an interest rate which, even though it was originally lawful insofar as it complied with the threshold rate, later proves higher than said rate is usurious and that therefore if the APRC (13) for the period is higher than the UTR (14) in force at the time of payment, the first must be considered usurious, even if it was not at the time the loan was granted.
This reconstruction is founded on the wording of Article 644 ter of the Italian Criminal Code, which states that “the period of limitation of the offence of usury commences from the date of the last collection of both interest and principal”.
However it should be specified that if we were to opt for the admissibility of supervening usury, Article 1815(2) of the Italian Civil Code (which, as stated, provides for nullity of the clause containing usurious interest in the mortgage contract) could no longer be reasonably applied, as it refers only and exclusively to the clauses that establish usurious interest at the time the contract was negotiated.
Instead the cases of supervening partial nullity and of automatic replacement of the individual clause, provided for by Articles 1419(2) and 1339 of the Italian Civil Code respectively, should be applicable. Accordingly the “supervening” usurious rate must be replaced by the threshold rate and the Bank must return only the difference between the two rates to the borrower.
Lastly, another issue which, in view of the current trend in market rates, has raised a great deal of interest is the question of whether or not the so-called “floor” clause (15), provided for in some variable-rate mortgage contracts, is legitimate.
Banking and Financial Ombudsman (ABF) dealt with the matter and with decisions no. 668/2011 and no. 2688/2011 (16) it confirmed the validity of said clauses in contracts concluded with consumers insofar as compatible with the rules set forth in Article 34 of the Consumer Code on the unfairness of clauses, provided they are set forth in a clear manner and can therefore be easily understood by the customer.
However if, after their stipulation, the floor rates should exceed the usury threshold rates, the provisions of point 2 above would apply.