By: Katerina Irodotou | ADVOCATE – LEGAL CONSULTANT @ A. Karitzis & Associates LLC
The Evolution of Interest Rate Legislation in Cyprus: A Legal Perspective
The Interest Rate Liberalisation and Related Matters Law of 1999 (N.160(I)/1999) came into force on the 01/01/2001 and replaced the more “borrower-friendly” Interest Law of 1977 (N. 2/1977). The question that arose many times before the Cyprus Courts was whether the provisions of N.160(I)/1999 apply retroactively.
The Interest Law of 1977 regulated, among other things, the creation and imposition of interest on a loan taken. Specifically, article 6 of the said law provided that, interest imposed on a loan cannot exceed the original amount borrowed. For example, if a debtor took a loan for €10,000, the bank could not claim anything more than €20,000 including interest.
However, the Interest Rate Liberalisation and Related Matters Law of 1999 and its subsequent amendments by the N. 141(I)/2014, N. 66(I)/2015 and the N. 117(I)/2024, removed the cap on the amount of interest that may be placed on a loan. This law aims to protect the rights of debtors by prohibiting the imposition of the additional burden imposed by the unilateral exercise by a credit institution of any contractual right arising from a margin increase clause and to promote transparency as regards to the calculation of interest rates on all credit facility agreements.
The Court was called many times to this day to address the matter of retroactivity of N.160(I)/1999 and whether its provisions apply on loan agreements made before the 01/01/2001. In the case of Ξιούρουππας κ.α. ν. Λαϊκή Κυπριακή Τράπεζα Δημόσια Εταιρεία Λτδ, Πολιτική Έφεση αρ. 386/2010, ημερ. 15/11/2016, it was confirmed by the Supreme Court that N.160(I)/1999 does not have any retroactive effect since it does not concern procedural provisions (Χριστοφίδης ν. Παττίχης (2002) 1 ΑΑΔ 245). It therefore does not affect rights, privileges, obligations or responsibilities secured or arising pursuant to Ν.26/1977. According to the rulings in Datamedia AE v. KSN (Business Aids) Ltd (1990) 1 CLR 13 and Intercollege v. of the Republic of Cyprus (2002) 3 ΑΑΔ 296, retroactivity in legislative provisions is not implied nor does it exist unless this is expressly determined.
However, in cases where monies were taken by a borrower from a current account in which a fixed capital could not be determined, interest would only apply at the time of termination of such account and as soon as the amount taken became fixed. In Ανδρέα Διονυσίου ν. Themis Portfolio Management Holdings Limited, Πολιτική Έφεση αρ. 196/2016, ημερ.31/10/2024, the Supreme Court stated that when the operation of a current account is terminated, the balance due becomes fixed and then interest is applied on that balance. By rule, under N. 2/1977, a bank could not demand recovery of an amount which exceeded twice the amount of the balance due at the time of such termination. For example, if a borrower makes various withdrawals from a current account, which in total, at the time of termination of such account were €40,000, the bank could not recover any amount bigger than €80,000.
From the above, we can see that as the times progress, new legislation comes into force, alters completely or in part a previous one and aims at facilitating the needs and demands of both financial institutions and borrowers. The Courts at times, are called to read between the lines and determine which legislation applies and where, since as with the current matter, we saw that such task is not always straightforward.
