Compound interest is a concept that, historically, has been tainted with an essentially mercantile flavour. It relates to the custom of banks in capitalising on the interest due by a client upon the expiry of a certain interval (the rest). Such practice, zealously vilified in some quarters whilst acclaimed as a prosperous enterprise in others, has been challenged more recently, at both judicial level and under statute, in the case of Italy. This contribution, in briefly recalling the origin of the concept of anatocism (the orthodox definition of compound interest) and, therefore, its Roman predecessor, the usurarum usurae and the futurarum usurarum usurarae (usurae), seeks to examine the state-of-the-art apparatus applicable to compound interest in the British common law. Such deliberations will thereupon give rise to what this paper aspires to describe as a peculiar development. In this respect, attention is drawn to the recent Consumer Rights Act 2015 and the manner in which the bank customer is theoretically entitled to rely upon it, with specific reference to the compound interest clause. As regards the ‘Continental experience’, the Italian jurisdiction, awash with judicial twists and incandescent doctrinal views on this topic, is discussed and analysed as a compelling and stimulating comparator.
|Number of pages||27|
|Journal||Law and Economics Yearly Review|
|Early online date||11 Aug 2016|
|Publication status||Published - 2016|
Sinclair, P. (2016). Compound Interest and its Validity (or Invalidity) in the Bank-Customer Relationship: the State-of-the-Art of British Common Law Discussed by virtue of a Comparative Analysis. Law and Economics Yearly Review, 5(1), 174-200. http://www.laweconomicsyearlyreview.org.uk/Law_and_Economics_Yearly_Review_LEYR_Journal_vol_5_part_1_2016.pdf