THE CONSTITUTIONAL COURT HAS RULED TO REPEAL THE STATUTORY INTEREST RATE SET UNDER ARTICLE 1 OF LAW NO. 3595, CONCLUDING THAT IT DISRUPTS FAIR BALANCE AND IS NOT IN LINE WITH ECONOMIC REALITY

SUMMARY OF THE APPLİCATİON

The Kahramanmaraş 3rd Administrative Court, in a case concerning compensation for damages incurred as a result of the destruction of real estate due to an earthquake, found the statutory interest rate set forth in Article 1 of Law No. 3095 to be unconstitutional and filed an objection with the Constitutional Court. The applicant court claims that the property right and the right to an effective application have been violated due to the low statutory interest rate and the absence of an effective arrangement to compensate the creditor for the loss in value of their money.

EVALUATİON

Statutory interest is the amount that must be paid in compensation for the creditor's inability to use their money at maturity and is applicable to both contractual and non-contractual debt relationships.

Article 1 of Law No. 3095 regulates that if the interest rate is not specified in the contract, an annual interest rate of 12% shall apply, and the President is authorized to reduce this rate to 10% or increase it up to double. The latest Presidential decision dated May 20, 2024, set the statutory interest rate at 24% per annum.

The Constitutional Court determined that the interest rate in question was insufficient to prevent the loss of value of the   creditor's money during periods of high inflation and therefore could not be said to protect the right to property (Constitution, Article 35) and the right to an effective application (Constitution, Article 40).

The Constitutional Court stated that the state failed to fulfill its positive obligation to provide effective mechanisms to prevent the loss of value of creditors and that, in this context, the current regulation neither safeguards the property rights of the rights holder nor effectively guarantees the right to an effective application.

CONCLUSION

Article 1 of Law No. 3095 was annulled as it was found to be contrary to Articles 35 and 40 of the Constitution with regard to debt relationships not arising from a contract.