By virtue of law no. 49 of 14.2.2016 (the “Law”), which came into force on 15 April 2016, the Italian Parliament made further amendments to Art. 120 of the Italian Consolidated Banking Act (Legislative Decree no. 385/1993), regulating interest compounding in banking transactions.
Following these amendments the CICR (“Comitato Interministeriale per il Credito e il Risparmio” - Interministerial Committee for Credit and Savings) is entrusted to enact implementing provisions aimed at ensuring that:
- interest accrued on current/payment bank accounts (either in favour of the bank or in favour of the account holder) shall be calculated on the same periodical basis which cannot be less than one year;
- accrued interest cannot generate further interest, except for default interest, and must be calculated only on the principal. Furthermore, in case of bank-account credit facilities and in case of overdrafts without a credit line or beyond the credit line amount:
- interest must be calculated on the 31st of December and will become due and payable on the 1st of March of the following year (unless the relevant relationship is terminated, in which case interest will become immediately due and payable);
- the client can authorize (also in advance) the debiting of accrued interest on its current account as soon as it becomes due and payable, in which case the relevant interest amount is considered as principal (the authorization can be revoked at any time before the debiting).
The Law seems to have re-introduced interest compounding under the conditions set out at (2)(b) above, since in this case interest debited on the current account can generate further interest, whilst the previous version of Article 120 of the Consolidated Banking Act provided that interest “periodically compounded” could in no event generate further interest. The amendments introduced by the Law to Article 120 of Consolidated Banking Act substantially confirm the principles outlined in the draft CICR resolution that was published on 24 August 2015 for public consultation and implementing Article 120, para 2 of the Consolidated Banking Act as amended by Law 147/2013. In fact, the draft CICR resolution provided that:
- interest shall be calculated at least on an annual basis and separately from the principal;
- interest accrued will become payable only after 60 days from receipt of the bank statement under Art. 119 of the Consolidated Banking Act;
- the relevant agreements can provide that accrued interest shall be debited on the relevant bank account (otherwise they must be charged separately).
It is possible that such draft resolution (which will replace the CICR resolution dated 9.2.2000) will be further amended in the light of the new wording of Article 120 of the Consolidated Banking Act.