Analysis of Judgment No. 21344 of 30/07/2024: the prohibition of compound interest in banking contracts

Judgment No. 21344 of July 30, 2024, issued by the Court of Cassation, represents an important reference point for the regulation of banking contracts, particularly concerning the prohibition of compound interest. In this article, we will analyze the content of the judgment, its meaning, and its implications for consumers and banks.

Regulatory context

The prohibition of compound interest, i.e., the application of interest on interest, is governed by art. 120, paragraph 2, of Legislative Decree no. 385 of 1993 (TUB). Law No. 147 of 2013 further clarified this matter, specifying that the prohibition takes effect from December 1, 2014, and is not subject to the adoption of resolutions by the CICR. This aspect is fundamental to understanding the implications of the judgment in question.

Exclusion. In the context of banking contracts, the prohibition of compound interest provided for by art. 120, paragraph 2, of Legislative Decree no. 385 of 1993 (TUB), as replaced by art. 1, paragraph 628, of Law no. 147 of 2013, takes effect from December 1, 2014, and is operative regardless of the adoption, by the CICR, of the resolution, provided for therein, concerning the methods and criteria for the accrual of interest in operations carried out in the exercise of banking activity.

Analysis of the decision

Through this judgment, the Court has excluded the need for a CICR resolution for the application of the prohibition of compound interest, stating that the prohibition has been in effect since December 1, 2014. This decision is significant as it eliminates a potential regulatory loophole that could have been exploited by some banking institutions. Consumer protection, in this context, is strengthened, ensuring that banking contracts cannot provide for the application of interest on interest without clear consent.

• Direct impact on transparency in banking contracts.
• Greater protection for consumers against usurious practices.
• Regulatory clarity that also helps banks avoid legal conflicts.

Conclusions

Judgment No. 21344 of July 30, 2024, by the Court of Cassation, represents an important step in protecting consumer rights and in regulatory clarity regarding banking contracts. With this decision, a principle of justice and transparency is affirmed that cannot be ignored in the Italian banking landscape. Banking institutions are therefore called upon to comply with these provisions to ensure the legality and correctness of their practices.