The conversion law of Italian Law Decree no. 91 of June 24, 2014 (so called “Competitiveness Decree”) did not confirm the amendments to Art. 120 of the Italian Consolidated Banking Law (“CBA”) on interest compounding ("anatocismo") in banking transactions, giving raise to discussions among academics and operators on the legitimacy of such practice.
In order to better understand the matter under discussion, it is necessary to briefly recap the recent legislative measures concerning the interest compounding.
According to art. 120 CBA - as amended in August 1999 by Legislative Decree no. 342/1999 (art. 25, para. 1 and 2) - the Italian Interministerial Committee for Credit and Savings (Comitato Interministeriale per il Credito e il Risparmio - “CICR”) was instructed to define procedures and criteria for interest compounding in banking transactions. The CICR implemented said instructions by enacting the Resolution of 9 February 2000 (the “CICR Resolution”), whereby interest compounding is permitted if the following circumstances occur:
- with reference to financing transactions providing for reimbursement in instalments:
interest may accrue on the whole amount (including principal and interest) of overdue instalments, provided that this is expressly provided for under the relevant facility agreement (art. 3 of CICR Resolution).
Furthermore, according to the CICR Resolution, interest can accrue over overdue interest only from the date of the legal action started by the creditor or by virtue of an express agreement that has been executed after the date on which the relevant interest became due, provided that said interest were due for at least 6 months (as also stated by art. 1283 of the Italian Civil Code).
- with reference to current account transactions:
interest compounding is admitted only if the bank account agreement provides for equal compounding for debtor and creditor interest.
In addition, any clause regulating interest compounding must be expressly approved in writing by the borrower.
Law no. 147 of 27 December 2013 (the so called "2014 Stability Law") amended para. 2 of art. 120 of CBA, by providing that CICR is delegated to determine the procedures and criteria applicable to interest accrual in banking transactions, which shall in any case provide that "interest periodically compounded cannot generate further interests which shall accrue only on the principal". Therefore, the purpose of the Italian legislator was evidently to prohibit interest compounding in banking transactions.
In a few months' time, specifically in June 2014, the Italian legislator further amended the second paragraph of art. 120 CBA through the above mentioned Competitiveness Decree, immediately applicable after its publication in the Official Gazette.
By means of such intervention, the Italian legislator has basically re-admitted interest compounding, by entrusting CICR with the task to determine procedures and criteria for the compounding of interest over interest already accrued on an annual basis. However, as anticipated above, such amendment has not been confirmed by the conversion law of the Competitiveness Decree and therefore is no longer in force.
Hence, interest compounding in banking transactions is once again regulated by art. 120 of CBA, as amended by the 2014 Stability Law, that to date has not yet been implemented by CICR.
As a consequence, on a formal point of view the CICR Resolution is currently still in place, which - as already mentioned - allows interest compounding, although within the specific limits set forth therein.
In the present scenario, where primary and secondary laws are not technically aligned, it is disputed whether, until the “new” CICR resolution implementing art. 120 CBA (as amended by the 2014 Stability Law) is issued, interest compounding in banking transactions has to be considered as a lawful practice pursuant to the CICR Resolution currently in force, or if on the contrary it has to be considered as no longer permitted pursuant to the current wording of art. 120 CBA.
In this respect, it must be noted that the Court of Appeal of Genova (Ordinance 11 March 2014) seems to have adhered to the last mentioned theory, having stated that “currently the banking interest compounding results to have been completely eliminated by Law 27/12/2013 no. 147, which has further amended art. 120 of CBA to allow only the accounting and no longer the compounding of interest”, regardless of the enactment of the secondary measures by CICR.
Unless there will be future interventions by the Italian legislator, it is necessary to wait for the issuance of the "new" CICR resolution in order to have primary and secondary laws again aligned, also in relation to the applicability to banking transactions of art. 1283 of the Italian Civil Code, which is in contrast to art. 120 CBA, prevailing as a lex specialis.