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Usury Limits Under the New Code of Obligations to
Set Interest Rates: Shall the Limitations Apply to
Business Transactions?
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Att. Fatih Isik
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 deter-
mined 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 par-
ties to determine the contractual
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interest rates.
Relevant Dispositions
Pursuant to art. 88 of TCO, – which introduced a cap on the max-
imum amount of interest – the capital interest to be determined by the
parties may not be %50 more than the rate to be determined in accor-
dance with Interest Act. Art. 120 of the TCO have 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
LAW OF OBLIGATIONS
279
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Article of June 2012
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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” instead 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 inter-
est” is used to signify the situation where the interest rate is legally determined.