• Usury Limits to Set Interest Rates Under the New Code of Obligations: Shall the limitations Apply to Business Transactions?
  • August 1, 2012
  • Law Firm: Erdem Erdem Law Office - Istanbul Office
  • Introduction

    The parties to a loan agreement may freely set the interest rate to be applied on the amount subject to the agreement. In case the parties did not decide on the interest rates, the interest rates shall be determined in accordance with the rules set forth under Law no. 3095 on Legal Interest and Default Interest (“Interest Act”). Under the Code of Obligations no. 818 (“CO”), the parties could freely determine the interest rates independent of any limitations. However, the Turkish Code of Obligations no. 6098 (“TCO”) which is in force since July 1, 2012, unlike the CO, introduced usury limits to the freedom of the parties to determine the contractual[i] interest rates.   

    Relevant Dispositions

    Pursuant to art. 88 of TCO, ...which introduced a cap on the maximum amount of interest - the capital interest to be determined by the parties may not be %50 more than the rate to be determined in accordance with Interest Act. Art. 120 of the TCO has a similar disposition for default interest. Pursuant to this article, the default interest rate to be determined by the parties may not be %100 more than the default interest rate to be determined in accordance with Interest Act. On the other hand, art. 8/1 of the Turkish Commercial Code (“TCC”) which is in force since July 1, 2012 stipulates that the parties may freely determine interest rates for business transactions.

    Legal Problem

    In this case, it is seen that the usury limitations set forth under TCO and the freedom for determination of the interest rates for business transactions stipulated by art. 8/1 of the TCC contradict. Consequently, the problem is to examine whether the limitations set forth under TCO shall be applied to business transactions despite the provision of art. 8/1 of the TCC. In other words, may the interest rates for business transactions be freely determined despite the provision of TCO? Another provision complicating the problem is art. 9 of the TCC. This article stipulates application of relevant legislation to legal, capital and default interests. Since the provisions of TCO are also a part of the legislation on interests, it is possible to defend that the interest rates limitations shall be applied to business transactions.

    This legal problem arises from the fact that the TCO does not include any specification regarding the scope of application of the relevant provisions from the point of persons and this problem is discussed in the doctrine[ii]. According to an opinion[iii], the TCO does not make any difference between the persons within the scope of application of the article such as merchants or non-merchants. The TCO provisions regarding interest rate limitations aim not only to protect the non-merchants but also the merchants because the excessive interest rates practices which is effective for the occurrence of the idea to limit the contractual interest rates caused negative effects also over the merchants. As a result, it must be accepted that the limitations for interest rates shall be applied also to the merchants.

    According to other opinion[iv], the relevant TCC provisions have the nature as “specific provision” which entered into force on the same date as TCO. Because of this fact, the TCC provisions, rather than the TCO, shall apply to the merchants. Within this scope, the interest rate for the business transactions shall be freely determined by the parties. According to this opinion, the reference made to application of legal dispositions concerning the interest is addressed only to conditions of interest, to its calculation, its subsidiary nature and interest rates; so that the reference cannot be accepted as addressed to the limitation of the rates. Another interpretation shall be in contradiction with art. 8/1 of the TCC.

    It is also expressed in the doctrine that the interest rates for the business transactions may freely be determined despite the fact that the limitations under TCO are statutory for the non-business transactions[v].

    Conclusion

    Indeed, it must be accepted that the merchants suffered during the economic crises periods because of the excessive interest rates. However, the fact that the TCC which has the nature of specific provision does not limit the freedom of the parties to determine a contractual interest rate, contrarily it stipulates an explicit freedom for determination of them, should be interpreted as the provisions of the TCO provisions regarding interest rate provisions shall not apply to business transactions. Otherwise, existence of art. 8/1 shall be discussed. Within this scope, it is possible that the freedom stipulated under art. 8/1 of the TCC shall be interpreted as the freedom is valid within the limitations stipulated under TCO. However, this idea cannot be defended by the justification of the article or the chronological development of the article. Should the legislator had the idea to limit the interest rates even for business transactions, it would have stipulated it either explicitly or by a reference to TCO. In this case, it is more convenient to accept that the interest rates shall be freely determined for business transactions. However, it should be always reminded that the freedom to determine the interest rates shall be limited with good faith principle, the situation of economic distress of the merchant or the possibility of reduction of the penal clause[vi].                      

     


    [i] In Turkish law, the terms “legal interest” and “contractual interest” are wrongfully used also because of the Interest Act. It is seen that the terms “legal interest” and “contractual interest” are used to signify capital interest, the interest which occurs on the capital debt without being subject to any default. However, the interest may be either capital interest or default interest and these interest rates may be determined either legally or contractually. Thus, the usage of “legal interest” and “contractual interest” in stead of capital interest is a wrongful practice. Because of this reason, within this article, the term of “contractual interest” is used to signify the interest rate that the parties has agreed on (either capital or default interest) and the term of “legal interest” is used to signify the situation where the interest rate is legally determined.

    [ii] Legal Hukuk Dergisi, September 2005, Year: 3 No: 34, p. 3641; AYDOGDU, Murat, 6098 Sayili Turk Borclar Kanununda Faiz ile Ilgili Duzenlemeler, Dokuz Eylul Universitesi Dergisi, 2010, Tome 12, N. 1, p. 95; OGUZMAN, Kemal/OZ, Turgut, Borclar Hukuku, Istanbul 2011, p. 523; ARKAN, Sabih, Ticari Isletme Hukuku, Ankara 2011, p. 77 vd.

    [iii] AYDOGDU, p. 95

    [iv] OGUZMAN/OZ, p. 523

    [v] ARKAN, p. 77

    [vi] OGUZMAN/OZ, p. 523, ARKAN, p. 77