1. Brief introduction to usury under Italian law
Usury is a highly debated issue under Italian law.
In broad terms, there are two different types of usury provided for by Italian law:
- Objective usury, meaning applying interest exceeding the usury threshold (which is set, on a quarterly basis, by a ministerial decree, based on interest applied on the market);
- Subjective usury, which applies when both of the following conditions are met: a) "Disproportion": the agreement provides for disproportionate interest amount with respect to principal and the average interest rates applied for transactions of the same type (even if the usury threshold is not exceeded); and b) "State of difficulty", which does not mean a "state of need", but rather refers to both economic difficulty, based on a global evaluation of the borrower's assets, and financial difficulty, which is a temporary lack of liquidity.
In practical terms, subjective usury is not frequently applied and, in any case, is not easy to prove.
Under Italian law, sanctions for usurious interest are twofold: 1) civil sanctions: pursuant to article 1815 of the Italian Civil Code, no interest shall be due and the borrower shall be entitled to claim the reimbursement of all interest amounts already paid to the lender; 2) criminal sanctions: pursuant to article 644 of the Italian Criminal Code, criminal sanctions shall apply.
To the extent a borrower only has assets to be attached in Italy, usury is a relevant issue for lenders, even if the relevant loan agreement is governed by a
law other than the Italian law and the courts of a country other than Italy have jurisdiction.
This newsletter does not consider the criminal aspects of usury and only deals with objective usury.
2. Supervening usury
The concept of "supervening usury" refers to the case where interest is below the usury threshold at the start of the loan, but exceeds such thresholds at a later stage. This scenario has become progressively frequent, given the fall of interest rates from 2013 onwards.
In this respect, Law Decree no. 394/2000 clearly set forth that interest is deemed usurious only if it exceeds the maximum threshold provided for by law at the time when the interest is contractually agreed by the parties, regardless of the time of its actual payment.
Notwithstanding such provision, the issue of supervening usury was addressed on several occasions by the Italian courts, including the Italian Supreme Court, and resulted in two different views:
1) according to a number of judgments, Law Decree no. 394/2000 only excluded applicability of sanctions in the case of supervening usury. Nonetheless, interest rates should have been lowered from time to time in order to align with the then applicable usury threshold, by way of an automatic replacement of the usurious interest clause;
2) according to other judgments, Law Decree no. 394/2000 should be construed literally, thus compliance with the usury threshold is relevant only at the time of execution of the loan agreement, regardless of the time of payment.
3. The view of the United Sections of the Italian Supreme Court
Given the conflicting views of the Supreme Court, the case was deferred to the United Sections ("Sezioni Unite") of the Italian Supreme Court, which are called upon to judge where there are conflicting views on major points of law. Thus, although the Italian legal system does not recognise the "stare decisis" principle, the judgment has a particular relevance and shall hopefully be followed by all courts.
Namely, by judgment no. 24,675 of 19 October 2017, the United Sections of the Italian Supreme Court endorsed the literal and lender-friendly approach (no. 2) above), which excludes relevance of supervening usury at all.
In the Court's view, lenders should assess compliance with usury rates only at the time when the loan agreement is entered into, irrespective of when payments are made thereunder: thus, any subsequent change to the reference usury threshold is not relevant. Therefore, a lender will be duly entitled, to claim and receive from the borrower payment of the full amount of interest provided for in the loan agreement.
4. Relevance where non-Italian law applies and non-Italian courts have jurisdiction
In one case only (judgment no. 17349 of 2002) did the Italian Supreme Court expressly deal with the issue of whether usurious interest might prevent enforcement in Italy of a foreign judgment.
However, in that case usurious interest had not been applied in the context of a loan agreement, but rather as a consequence of a contractual breach under an accounting services agreement, thus it is not sure whether such judgment is applicable to loan agreements, as well.
On the contrary, some authors have expressed the view that application of usurious interest might actually prevent the enforcement of a foreign judgment sentencing a borrower to pay usurious interest, the rationale being that rules on usury are deemed an international public policy principle.
Therefore, in the case where a borrower only has assets in Italy (thus, the foreign judgment would have to be enforced in Italy in case the borrower refuses to pay), it is strongly advisable to comply with Italian rules on usury to ensure enforceability in Italy of the future judgment. In this respect, the judgment of the United Sections of the Supreme Court is very helpful, as it excludes relevance of supervening usury at all.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.