In "land credit" contracts, the borrower has the legally-assured option of early repayment of the home loan; but generally, even in ordinary contracts, that possibility is foreseen. The borrower may decide, therefore, at a certain point in the repayment plan, to close out the contract and repay the remaining capital, on which obviously he will no longer pay interest.
Given this loss of earnings, the bank could, if the contract so stipulates, demand compensation (a penalty). According to a decision of the C.I.C.R. of 9 February 2002, which only covered "land credit" mortgages, the compensation (if it existed) was to be fixed as an "exclusive" and "all-inclusive" amount, and the contract had to stipulate expressly that "no other charge may be debited". Not only that: there had to be a specific indication of the formula whereby the compensation was to be calculated, using where possible easily available financial indices, and several examples of the application of the formula had to be included in the contract or in an annex.
The compensation for early discharge was to be expressly indicated in both the European information sheet (E.S.I.S.) and in the "fact sheet" as well as in the summary document, as prescribed by the C.I.C.R.
In a variable rate home loan contract with an ordinary redemption plan, the compensation, if it existed, was generally fixed at a modest percentage.
Maximum attention, instead, was to be paid to fixed-rate mortgages, or those with particularly flexible repayment plans: in such cases, the banks had the habit of increasing the amount of the penalty, sometimes in a not very transparent manner, with the declared intention of covering any fluctuations in the cost of money.
When (on 3 April 2007) Law no. 40 of 2 April 2007 came into force, being a conversion with amendments of decree-law no. 7 of 31 January 2007, compensation (or penalties) for early discharge or partial repayment were eliminated with regard to the following contracts: mortgages granted by financial institutions, banks and obligatory national insurance bodies (INAIL, INPS, etc.) for the purchase or restructuring of residential properties or properties used by individuals for the carrying out of their own economic and professional activity.
The new rules on penalty clauses are valid for mortgage contracts subsequent to 2 February 2007 (the day the decree law came into force).
For mortgage contracts dating from before 2 February 2007, the actual cost to the customer, in the case of early discharge, was established by an agreement between Associazione Bancaria Italiana (ABI) and consumer associations signed on 2 May 2007; this reduced the previously agreed compensation limits.