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After many months of anticipation, the Supreme Court (Areios Pagos) has ruled in favor of borrowers under the Katseli Law, holding that interest should be calculated based on each individual installment and not on the total restructured principal. The issue arose due to contradictory judicial decisions, which ultimately forced the highest Court of Cassation in civil matters to intervene under the pilot trial mechanism. Let's therefore examine some key questions related to the decision:
- What is a "pilot trial" at the Supreme Court?
- What was ultimately decided?
When you take out a loan, there are basically three repayment systems: French, German, and American. In Greece, the French system is predominantly used, which results in a fixed monthly installment (assuming a fixed interest rate). In the early stages of repayment, the installment consists mainly of interest, and as it approaches the end, it consists mainly of principal.
In this case concerning the repayment of a debt settlement under the Katseli Law for the preservation of the primary residence, it was decided that borrowers will pay interest calculated on each individual installment, and not on the total principal. In fact, as far as I am aware, nowhere else in the world is interest calculated in this manner. Even under the out‑of‑court debt settlement mechanism of Law 4738/2020—where a fixed restructuring interest rate of 3% was adopted due to rising interest rates—the calculation is made on the total principal, not on each installment.
However, in this instance, the Supreme Court interpreted the law not so much according to economic logic and theory, but rather based on the purpose of the Katseli Law, i.e., the preservation of the borrowers' primary residence.
Lower courts that accepted this borrower‑friendly position generally stated the following: "Accordingly, and taking into account the overall purpose of Law 3869/2010, as reflected in its explanatory report and as stated above, which is primarily the reintegration of the over‑indebted citizen into economic and social life through the recovery of economic freedom inherently involved in the elimination of debts they are unable to repay, it should be clarified that the interest is to be calculated on each monthly installment imposed by the Court, since only in this way is the above purpose of the Law served. [...] A contrary interpretation would result in the over‑indebted borrower being re‑trapped in a situation from which they would not be able to escape, by paying disproportionate installments beyond their financial means, thus undermining the purpose and spirit of the law."
- Who is affected by the decision?
- Does the decision have any effect or "moral hazard" on other loans?
- Are Funds and Banks required to return unduly paid amounts with interest?
If the borrower has paid more than what was owed, the excess amounts may be offset against future installments or simply reclaimed from the Bank or the Fund. Moreover, from the date of publication of the Supreme Court's decision, default interest is calculated in favor of the borrower (currently at a rate of 9.4%), because the Bank/Fund is now considered to know that those amounts were unduly paid (Article 911 of the Greek Civil Code).
- Does the decision have retroactive effect?
Yes. The Supreme Court cannot limit the temporal effect of its decision since it interprets the law and the relevant judicial decisions as they have applied. Specifically, it interpreted Article 9(2) of Law 3869/2010, and therefore the interpretation of the provision is the same for the entire period of its validity. The same provision cannot be interpreted one way for the regime before the Supreme Court's decision and another way for the perio
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
