Ruling on compound interest

Banks cannot force borrowers to pay compound interest on overdue debts even if that is a term of the contract signed by both parties, according to a decision issued by an Athens court, a report said yesterday. According to the Athens News Agency, decision 5467/2002 by the Athens Court of First Instance notes that such terms are not legally binding as they result in banks drawing revenues that are out of proportion to the services they provide. The ruling followed a suit by a group of loan-takers who had signed contracts under which the interest rate on their loans would be increased every three months from the expiry of the original repayment deadline. As a result of mounting discontent, mainly among the owners of small and medium-sized enterprises, in 2001 the government passed legislation to alleviate the suffering of loan-takers arising from the compound interest system. The law decreed that the total interest due on a loan cannot exceed six times the sum initially borrowed.

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