Significant Increase in Legal Interest Rates in Turkey: What Businesses and Individuals Need to Know for Money Claims

On May 21, 2024, the Turkish government published a presidential decree in the Official Gazette, significantly raising the legal interest rate from the longstanding 9% to 24% annually, effective from June 1, 2024. This adjustment under Presidential Decree No. 8485 involves Article 1 of Law No. 3095 on Legal Interest and Default Interest. This policy shift is particularly consequential for the financial dynamics within litigations and enforcement proceedings concerning monetary receivables, where the principle amounts have been severely impacted by inflation.

Rationale Behind the Increase

The decision to elevate the legal interest rates appears to be a strategic move to combat the adverse effects of the country’s current inflationary environment. By boosting the interest rate, the government aims to preserve the value of principal claims, especially in legal disputes and collections, ensuring that creditors do not suffer excessive value loss by the time of recovery. Significant Increase in Legal Interest Rates in Turkey

Potential Effects on Money Disputes and Creditor's Liabilities

1. Increase in Compensation Amounts: For legal disputes resolved in favour of creditors, the increase in legal interest will lead to significantly higher total payments that debtors will need to make. This rise could result in increased financial burdens on businesses as they will have to allocate more funds to settle debt claims.

2. Prompt Resolution of Cases: Higher interest rates may incentivise parties to settle disputes swiftly. Facing the prospect of accruing higher interest costs, businesses might opt for quicker, more amicable resolutions rather than prolonging litigation.

3. Boost in Out-of-Court Settlements: The new rate may also encourage more negotiations and settlements out of court. Both debtors and creditors could see the benefit in resolving disputes through mediation or settlement rather than facing unpredictable, lengthy court battles.

4. Impact on Financial Planning: Companies will need to reassess their financial planning strategies to accommodate the potential for increased liabilities due to higher compensatory and interest payments. This may include bolstering financial reserves or revising budget plans to manage these new economic realities more effectively.

Legal Perspective from CCS Law

At CCS Law, we recognise that these changes could have significant implications for our clients' financial and operational strategies. The increase in legal interest rates reflects a shift in the legislative landscape that could influence various aspects of business, from contractual agreements to dispute resolution methods. It is crucial for businesses to understand these changes fully to manage their legal and financial risks effectively.

How Can CCS Law Help?

CCS Law is dedicated to providing our clients with up-to-date legal guidance that aligns with the latest regulatory changes. If you believe this decision might affect your business or if you need specific legal advice related to the increased legal interest rates, do not hesitate to contact us. Our team of experts is prepared to assist you in navigating these changes and optimising your legal and financial strategies to align with the new legal landscape.

For further inquiries or to schedule a consultation, please reach out to us at CCS Law. We are here to ensure that your business not only adapt to these new legal standards but also thrives under them.