Act No. 38/2001 on interest and price indexation.
This is an English translation.
The original Icelandic text, as published in the Law Gazette (Stjórnartíðindi), is the authoritative text. Should there be discrepancy between this translation and the authoritative text, the latter prevails.
26 May 2001
Entered into force on 1 July 2001. EEA Agreement: Directive 2000/35/EC: Amended by Act No. 51/2007 (entered into force 1 January 2008) and Act No. 159/1993 (entered into force 1 January 2009).
Article 1 This Act shall apply to interest on monetary claims under commercial law and other fields of law, as applicable, as well as to other remuneration which is stipulated or charged for the extension of credit or deferrals of payment.
This Act shall also apply to the price indexation of savings and loans.
Article 2 The provisions of Chapters II and IV of this Act shall apply only where contracts, custom or law do not dictate otherwise. Derogations may also be made from other provisions of the Act to the extent that the Act permits.Derogations from the provisions of the Act are always permitted, however, where such derogations are to the advantage of the debtor.
Article 3 Interest shall be paid on monetary claims only if required by contract, custom or law. Interest shall be paid as of the date that a monetary debt is created and until the due date of payment.
Article 4 Where interest is payable pursuant to Article 3, but no percentage or reference rate is otherwise specified, the interest rate shall be equal to the interest rate decided by the Central Bank of Iceland, having regard to the lowest interest rate on new, general, non-indexed loans from credit institutions, and posted in accordance with Article 10. In cases involving indexed claims, the interest rate shall be equal to the rate decided by the Central Bank, having regard to the lowest rate of interest on new, general, indexed loans from credit institutions, and posted in accordance with Article 10.
Article 5 If a due date has been decided in advance, a creditor may demand penalty interest on an unpaid monetary claim, calculated as of the due date until the date of payment.
Penalty interest shall always be calculated on a per diem basis, except as otherwise specifically provided for by law.
If no due date is agreed for a claim, penalty interest may be calculated as of the date when one month has elapsed from the time the claimant verifiably called for due payment from the debtor. If the call for payment is made on a day of the month which does not occur in the following month, the debtor shall pay penalty interest as of the final day of that month.
Notwithstanding the provisions of the third paragraph, penalty interest may always be calculated as of the date that court proceedings are initiated in respect of a claim, subject to Article 9.
Article 6 Penalty interest shall be the sum of the current rate for the most common short-term loans of the Central Bank of Iceland to credit institutions (the penalty interest base) in addition to [a margin of seven percent]1)(default margin), unless otherwise agreed, as provided for in the second paragraph of this Article. ?1) The Central Bank shall publish penalty interest rates as provided for in this paragraph no later than one week prior to the date of effect of penalty interest rates, which shall be [the first day of each month].1)
Agreements may provide for a fixed percentage for the default margin on top of the penalty interest base, as provided for in the first paragraph, with the exception of consumer loans. Agreements may also provide for a fixed percentage for penalty interest, with the exception of consumer loans.
Article 7 If circumstances relating to a creditor, which cannot be attributed to the debtor, result in payment not being made, penalty interest shall not be calculated for the time that payment is delayed as a result. The same shall apply if payment is not made because a debtor is resorting to default remedies with respect to a creditor or withholds full or partial payment on other legitimate grounds.
Interest on claims for damages
Article 8 Claims for damages shall bear interest as of the date that the event giving rise to damages occurred. The interest at any time shall be equivalent to two-thirds of the interest rate decided by the Central Bank of Iceland and posted in accordance with the first sentence of Article 4.
If, however, the amount of a claim for damages is based on a price level subsequent to the occurrence of the event giving rise to damages, the claim shall bear interest as provided for in the first paragraph from that time.
Article 9 Claims for damages shall bear penalty interest, as provided for in the first paragraph of Article 6, after one month has elapsed from the date that the creditor verifiably supplied the information required to assess the event of damage and the amount of damages. A court may, however, if circumstances warrant, decide on another initial date for penalty interest.
Various provisions on interest
Article 10 A credit institution is required to notify the Central Bank of Iceland of all interest rates and changes in rates in such form and with such notice as the Central Bank may require.
The Central Bank shall, prior to the end of each month, publish in the Legal Gazette (Lögbirtingablaðið) interest rates for non-indexed and indexed loans, as provided for in Article 4, and interest on damage claims, as provided for in Article 8, and each notification shall be used as the reference basis for the purposes of this Act for the following month, or until the next notification is published. At the same time, the Central Bank shall publish in the Legal Gazette the penalty interest rate provided for in the first paragraph of Article 6, i.e. the penalty interest base and default margin. The Central Bank shall, at the end of each year, publish in Section B of the Law and Ministerial Gazette (Stjórnartíðindi) a table showing interest rates in accordance with this paragraph for each month of the past year.
In addition to interest rates as provided for in the second paragraph, the Central Bank may publish other interest rates of credit institutions in the Legal Gazette.
Article 11 If legal proceedings are initiated to collect a monetary claim, and interest is claimed with reference to Articles 4 or 8, or penalty interest in accordance with the first paragraph of Article 6, such interest may be awarded by a court of law even if its percentage rate is not specified in the writ of summons. If legal proceedings are initiated to collect a monetary claim, and penalty interest is claimed in accordance with the second paragraph of Article 6, the writ of summons must specify the percentage rate of the default margin or the percentage rate of penalty interest if fixed penalty interest was agreed.
Article 12 If an interest period is longer than twelve months and no interest has been paid, the accrued interest shall be added to the principal and new interest calculated on the resulting aggregate amount. Interest shall not be added to the principal more frequently than at twelve-month intervals, except in the case of deposit accounts of credit institutions.
In calculating interest, each month shall be considered to have 30 days and each year to have 360 days, unless otherwise agreed or indicated by custom.
Price indexation of savings and loans
Article 13 The provisions of this Chapter shall apply to obligations concerning savings and loans in Icelandic krónur (ISK) where the debtor promises to pay money and it has been agreed or stipulated that the payments should be price-indexed. Price indexation as referred to in this Chapter shall mean changes in line with a domestic price index.Authorisation for price indexation shall be as provided for in Article 14 of this Act unless otherwise provided for by law.
Derivative agreements do not fall within the scope of this Chapter.
Article 14 Savings and loans may be price-indexed in accordance with Article 13 if the basis of the price indexation is the consumer price index as calculated by Statistics Iceland in accordance with legislation applicable to the index and published monthly in the Legal Gazette. [An index which is calculated and published in a specific month shall apply to the indexation of savings and loans from the first day of the second month thereafter.]1)
However, a loan agreement may be based on a share price index, domestic or foreign, or a set of such indices which do not measure changes in general price levels.
1)Act 51/2007, Art. 1.
Article 15 The Central Bank may, subject to the approval of the Minister of Business Affairs, decide on a minimum maturity for indexed deposits and loans. The Bank may also, subject to the approval of the Minister, decide that the interest rates on indexed deposits and loans should be fixed during the period of the loan.
The Central Bank shall adopt further rules1) on the indexation of savings and loans.
1)Reg. 492/2001.
Article 16 When charges containing provisions on indexation are officially registered, it should be ensured that the indexation is recorded in the registry and the charges shall be indicated on certificates issued by the registrar concerning entries in the registry.
Article 17 Violations of Chapter VI of this Act are subject to fines, unless more severe penalties are provided for in other acts of law.
Article 18 If an agreement on interest or other consideration for the provision of a loan or deferral of payment or penalty interest is deemed void, and if consideration has been paid, the creditor shall repay to the debtor any amount which he has been wrongly paid. In determining repayment shall be subject to Article 4, as applicable.
Entry into force
Article 19 This Act shall enter into force on 1 July 2001. ?
I.If a loan agreement in ISK concluded prior to the entry into force of this Act provides for variable interest until the due date of payment in accordance with the weighted average annual interest return on new loans made by commercial banks and savings banks, average loan interest rates of commercial banks and savings banks, or average loan interest rates as posted by the Central Bank of Iceland, or if reference is made in other general terms to market interest, the interest rate on such monetary claims, following the entry into force of the Act, shall be equal to interest pursuant to the first sentence of Article 4 plus an additional 3.5% in the case of a non-indexed monetary claim and equal to interest rates pursuant to the second sentence of Article 4 plus an additional 2.5% in the case of an indexed monetary claim.
If a loan agreement in ISK concluded prior to the entry into force of this Act provides for variable interest until the due date of payment in accordance with the highest interest rates permitted by law at any time, the highest market interest rates, or if reference is made in other general terms to the highest interest rates in the market, the interest rates on such monetary claims shall, following the entry into force of this Act, be equal to interest rates pursuant to the first sentence of Article 4 plus an additional 4.5% in the case of a non-indexed monetary claim and equal to interest rates pursuant to the second sentence of Article 4 plus an additional 3.5% in the case of an indexed monetary claim.
II. If a monetary claim in ISK, including a claim for damages, a court decision or other instrument, concluded prior to the entry into force of this Act stipulates that in the event of default the claim should carry the highest penalty interest permitted by law, penalty interest as decided by the Central Bank of Iceland, or penalty interest in accordance with the Interest Act, or if reference is otherwise made to penalty interest decided by the Central Bank pursuant to Article 10 of Act No. 25/1987, then penalty interest shall be calculated, after the entry into force of the Act, as provided for in the first paragraph of Article 6, of this Act.
III. If a loan agreement in a foreign currency concluded prior to the entry into force of this Act states that in the event of default the highest penalty interest permitted by law, penalty interest as decided by the Central Bank of Iceland, or penalty interest in accordance with the Interest Act should be used, or if reference is otherwise made to penalty interest as decided by the Central Bank pursuant to Article 11 of Act No. 25/1986, then such penalty interest shall be determined in the same manner for the next five years following the entry into force of this Act; after that time this interest shall be equal to the penalty interest rate for the currency in question last advertised by the Central Bank in the Legal Gazette five years after the entry into force of the Act.
IV. If a loan agreement, certificate of deposit or other instrument in ISK concluded prior to the entry into force of this Act states provides for adjustment of amounts in accordance with the exchange rate of the SDR or EUR (the SDR or EUR exchange rate index), calculated and posted by the Central Bank of Iceland, then each month account shall be taken of the official EUR or SDR exchange rate (buying rate) in accordance with Article 15 of Act No. 36/1986 on the Central Bank of Iceland on the 21st day of the preceding month. Should the exchange rate not be posted on the 21st day of a month, account shall be taken of the most recent buying rate posted before that day. Deposits may not be accepted to accounts established under the terms described above before the entry into force of this Act.
V. The consumer price index, cf. Article 14 of this Act, with a base of 100 in May 1988, shall each month be multiplied by a factor of 19.745. The result, rounded off to the nearest whole number, shall be used as the index for the following month, first for April 1995, with respect to monetary obligations negotiated prior to 1 April 1995 and containing provisions on the credit terms index calculated by the Central Bank and posted each month as authorised by Article 39 of Act No. 13/1979 on the management of economic affairs, etc. cf. Regulation No. 18/1989. Statistics Iceland shall publish each month in the Legal Gazette the index provided for in the second sentence of this paragraph.
If adjustments are made in the base for the consumer price index, Statistics Iceland shall publish in the Legal Gazette a multiplication factor for the index as adjusted to replace the factor referred to in the first paragraph.
The provisions of the first and second paragraphs shall also apply to the credit terms index in acts of law and any other administrative provisions and agreements in effect on 1 April 1995.
VI. No later than one week prior to the entry into force of this Act the Central Bank shall post penalty interest rates as provided for in Article 6.
[VII. The index calculated and posted in the month of January 2008 based on price data for the price level in the first two business days of January shall apply to the price indexation of savings and loans in February 2008.]1)
1)Act 51/2007, Art. 2.
[VIII. The index calculated and posted in the month of January 2008 based on price data for the price level over a period of approximately one week in mid-January shall apply to the price indexation of savings and loans in March 2008.]1)
1)Act 51/2007, Art. 2.