Banking Anatocism

The Court of Cassation, with the Sentence n. 21095 issued on 4 November 2004, declared the illegitimacy of quarterly capitalization of interest applied in a foregoing period; nevertheless, this practice is actually employed as an effect of a content variation in the article n.120 of the Banking Consolidation Act. In fact, a regulatory law, since year 2000, provides the same rate either for credit interests.
Therefore, previously the credit institution employed banking anatocism by applying a quarterly interest rate to Customers who exploited current account facilities and current account overdrafts, while applying annual credit interests.
We would point out that article n.1283 c.c. provides, on the contrary, expired interest could accrue interest only since the day of judicial application or as a consequence of  a following agreement to their deadline and, at any rate, in case of interest accrued at least since 6 months.  
Formerly, the Court issued other sentences for this purpose(n. 2374 of 16 March 1999 and n. 3096 of  30 March 1999), however, after the latest pronouncement it was established that the legal basis lack of quarterly capitalization of interest, even during the period from 1981 to 1998.
There was an attempt to solve the problem by issuing the Law Decree 642/1999 which established that banking contractual practices – by providing quarterly capitalization of interest – could act as “regulatory practices” according to Articles 1 and 8 of Civil Code preliminary rules.
However, through its last sentence, the Court argued that such practices can be applied as “negotiating practices” and therefore they cannot be considered as a derogation of the foregoing provisions provided by Article 1283 c.c.; consequently, the norm intended to set the previous relationship shall lapse.
According to that, all customers in a disadvantaged position could require to Credit Institutions the legal interest refund (ten-year expiration date), even by applying an interruption of the period of limitation.
We would point out that the refund request is not a standard criterion and if the Bank doesn’t agreed the Client should undertake legal proceedings (for a refund amount lower than € 2.500,00 the legal action should be applied to the Justice of the Peace and in this case the proceeding is more rapidly). Nevertheless, the legal action should be carefully assessed for refund request of a higher amount, since normally a legal action should keep on 4-5 years and the incurred expenses should be approximately € 4/5.000,00.
Our Company arranged the calculation of interest adjustment, maximum bank overdraft and closing costs practices since the early period of anatocism, in order to estimate the specific amount paid in excess to be refunded by Banks.