The decision forms part of the line of case law already established by the Radlinger (C-377/14), Mikrokasa (C-779/18) and Soho Group (C-686/19) judgments, further reinforcing the Court’s substantive approach to distinguishing between the ‘total amount of credit’ and the ‘total cost of credit’.
1. The case
The dispute arises from a consumer credit agreement between a consumer and Bank Polska Kasa Opieki S.A.: the amount of the credit totalled PLN 150,000.00 (approximately EUR 34,400.00), of which PLN 133,214.92 was actually paid to the consumer, whilst the remaining PLN 16,785.00 was allocated to the payment of a voluntary insurance policy linked to the loan. The bank had applied the borrowing rate to the entire amount financed, including the insurance premium.
On the basis of EU law, the Court of Justice of the European Union concludes that Directive 2008/48 precludes terms which provide for the application of interest not only to the amount actually made available to the consumer, but also to sums intended to cover the costs of the credit, including insurance premiums.
2. The relevant legal framework
2.1 EU law
In ruling on the case before it, the Court of Justice of the European Union directly applied the principles set out in Directive 2008/48/EC.
In particular, Article 3(g) of Directive 2008/48/EC defines the ‘total cost of the credit to the consumer’ as comprising all costs, including interest, fees, taxes and charges that the consumer is required to pay in connection with the credit agreement, including insurance premiums if the conclusion of the relevant insurance contract is compulsory in order to obtain the credit or to obtain it on the terms offered.
Article 3(j) defines the ‘borrowing rate’ as the interest rate, expressed as a fixed or variable percentage, applied on an annual basis to the ‘amount of drawdowns made’, whilst the ‘total amount of credit’ is defined in Article 3(l) as the maximum limit or the total sum of the amounts made available under the credit agreement.
The Court of Justice of the European Union states that, according to settled case-law, the concepts of ‘total amount of credit’ and ‘total cost of credit to the consumer’ are mutually exclusive and, therefore, the total amount of credit cannot include any of the sums forming part of the total cost of credit (judgments in Radlinger and Radlingerová, C-377/14, paragraph 85, and Soho Group, C-686/19, paragraph 42).
2.2 Italian law
In Italy, Directive 2008/48/EC was transposed by Legislative Decree No 141 of 13 August 2010, which amended Title VI of the Consolidated Banking Act (Legislative Decree No 385 of 1 September 1993 — hereinafter ‘TUB’). The same definitions of ‘total cost of credit’ and the obligation to correctly indicate the APR are set out in Articles 121 et seq. of the TUB. In particular, Article 125-bis(6) of the TUB provides that any clauses relating to costs that have not been included, or have been incorrectly included, in the advertised APR are null and void, with the consequent application of a substitute rate equal to the minimum rate on Treasury bills (BOTs). Legislative Decree No. 212 of 31 December 2025, which transposed Directive (EU) 2023/2225 (the new Consumer Credit Directive), confirmed and strengthened the regulatory framework, whilst maintaining the structure of penalties and transparency obligations.
3. The Court’s ruling: the prohibition on ‘interest on fees’
The Court reiterates, first of all, that the concepts set out in Article 3 of Directive 2008/48 are autonomous concepts of EU law, to be interpreted uniformly throughout the EU, without reference to national law (Soho Group, C-686/19, paragraph 39) and that the Directive adopts a broad definition of ‘total cost of the credit’, referring to all costs which the consumer is required to pay under the credit agreement and which are known to the creditor (Mikrokasa and Revenue, C-779/18, paragraph 39).
According to the Court, since the two concepts — total amount of credit and total cost of credit — are mutually exclusive, the ‘borrowing rate’ within the meaning of Article 3(j) must be applied exclusively to the ‘amount of withdrawals made’, which corresponds to the total amount of credit made available to the consumer, and cannot be extended to sums intended to cover administrative charges, interest, fees or any other type of cost; this also applies to insurance costs.
It is worth noting that the Court also specifies that the classification of an amount as the ‘total cost of credit’ does not depend on whether or not it has been paid into the consumer’s bank account: the fact that the funds are paid directly into the borrower’s account or to a third party (e.g. the insurance company) is a matter of chance and does not affect the classification.
In applying the aforementioned principles to the case before it, the Court held that the ‘voluntary’ nature of the credit insurance was not sufficient to exclude the payment of the relevant premium from the total cost of the credit. Indeed, although taking out such a policy was not compulsory in order to obtain the loan as such, but rather in order to obtain it on the terms proposed by the lender, namely at a lower interest rate, this implies that the payment of that premium falls fully within the concept of the ‘total cost of the credit to the consumer’, within the meaning of Article 3(g) of Directive 2008/48, which in fact also includes ‘insurance premiums where the conclusion of the relevant contract is compulsory in order to obtain the credit or to obtain it on the terms offered’.
Therefore, according to the Court, Article 3(g) and (j) of Directive 2008/48, read in conjunction with Article 10(2) of that directive, preclude the inclusion in consumer credit agreements of terms providing for the application of the interest rate not only to the total amount of the credit, but also to sums intended to cover costs associated with that credit and forming part of the total cost of the credit to the consumer.
Furthermore, the Court clarifies — in a point of particular importance for credit institutions — that the prohibition does not limit the types of costs or charges that the creditor may impose on the consumer (subject, inter alia, to the principles of clarity and transparency): the creditor may offset the gradual depreciation of money over time by applying a proportionally higher borrowing rate that reflects the cost of not collecting interest on the amounts corresponding to the costs of the credit.
4. Implications and risks for banks and financial institutions
Although the judgment was delivered in relation to a contract governed by Polish law, it sets out autonomous principles of EU law which are therefore directly applicable in all Member States, including Italy. The operational implications are significant and are set to have a profound impact on the consumer credit market.
4.1 Invalidity of ‘interest on fees’ clauses and reimbursement of costs
In Italian consumer credit agreements, a clause applying the borrowing rate also to credit costs (commissions, insurance premiums, application fees, etc.) included in the nominal principal of the loan is incompatible with Directive 2008/48 as interpreted by the Court. Under Article 125-bis(6) of the Consolidated Banking Act (TUB), clauses relating to costs not correctly included in the APR are void.
The invalidity of such clauses does not render the contract void, but exposes the bank to:
- reimbursement of interest unduly received on the portion of the principal corresponding to the credit costs for the entire duration of the relationship that has already elapsed;
- recalculation of the remaining repayment schedule, excluding the costs from the basis for calculating interest;
- application of the substitute rate (minimum BOT rate) pursuant to Article 125-bis, paragraph 7, of the Consolidated Banking Act (TUB), in cases where the nullity relates to the indication of the APR.
4.2 Incorrect indication of the APR
The contested practice — applying interest to a taxable base that includes the costs of the credit — structurally alters the calculation of the APR. The Court reiterates that informing the consumer of the total cost of the credit in the form of a rate calculated according to a single mathematical formula is essential, both to enable comparison between offers and to allow the consumer to assess the extent of their commitment. An APR determined in this way is therefore incorrect, resulting in the application of the penalties of nullity provided for in Article 125-bis of the Consolidated Banking Act (TUB).
4.3 Characteristics of an unfair term within the meaning of Directive 93/13
Directive 93/13/EEC classifies as unfair – and therefore not binding on the consumer – any term that has not been individually negotiated and which, contrary to the requirement of good faith, creates a significant imbalance in the rights and obligations of the parties; and a term pre-drafted in a standard form contract is presumed not to have been individually negotiated. The ‘interest on fees’ clause falls squarely within this category, given that the consumer:
- has had no influence whatsoever on the content of the standard form contract;
- is unaware (or would be unaware in the absence of specific information) that interest is calculated on a basis that includes the costs of credit;
- suffers a measurable economic imbalance in the amount of excess interest paid.
4.4 Exposure to serial litigation
The Polish precedent — in which the bank was forced to agree to the consumer’s claim even before the judgement was handed down — clearly indicates the direction of the litigation. In Italy, the possibility of bringing class actions under Article 840-bis of the Code of Civil Procedure, representative actions under Article 140-ter of the Consumer Code, as well as access to banking ADR (ABF) mechanisms, paves the way for:
- individual claims for the reimbursement of unduly paid interest, with a ten-year limitation period running from the date of conclusion of the contract or, in the case of an unfair term, from the moment the consumer became aware of the unfair nature of that term, unless the lender can prove otherwise (see CJEU Case C-679/24, UniCredit Bank and Momentum Credit)
- class actions, including those brought by individuals, and representative actions brought by consumer organisations;
- ABF proceedings, which for years have been addressing the calculation of the APR in consumer credit agreements involving associated insurance premiums.
4.5 Regulatory and penalty risk
The Bank of Italy, as part of its supervisory role regarding the transparency and fairness of relations between intermediaries and customers (Articles 127 et seq. of the Consolidated Banking Act), may initiate or sanctioning proceedings for breaches of transparency obligations relating to consumer credit. Legislative Decree No. 212 of 31 December 2025 — which implemented Directive (EU) 2023/2225 — confirmed and strengthened the applicable penalty regime, making regulatory oversight even more rigorous.
4.6 Scope of the risk: consumer credit and linked insurance products
The risk in question relates in particular to:
- personal loans and special-purpose loans where the cost of insurance (PPI — Payment Protection Insurance, CPI policies) is included in the loan principal;
- salary secured loans where life and unemployment risk insurance policies are structurally included in the amount disbursed;
- instalment credit cards with capitalised ancillary costs;
- Mortgage loans not falling within the scope of Directive 2008/48 (but subject to Directive 2014/17/EU and the Consolidated Banking Act (TUB) in respect of property loans), where, however, similar arguments could be developed by national case law by analogy.
- In general, all personal loans and financing arrangements where the borrowing rate is also applied to the costs of the credit (commissions, insurance premiums, application fees, etc.) included in the nominal principal of the loan.
5. Possible solutions and adjustment measures
A particularly interesting passage in the judgment is where the Court observes that the creditor may nevertheless safeguard the economic balance of the transaction by applying a higher borrowing rate to the capital actually financed, provided that the costs of credit are not subject to interest.
The Court, therefore, does not prohibit the economic recovery of the cost of the service, but only its artificial conversion into interest-bearing capital
As regards contracts already entered into, the following measures are recommended:
- a review of the standard contractual terms and SECCI forms
- recalculation and adjustment of the APR
- adjustment of pricing systems within the limits permitted by the Court’s judgement
- due diligence on the existing portfolio, quantification of potential exposure and prudential provisions
- review of complaints procedures (stress tests) and ADR
- monitoring of litigation and ABF practices
- any voluntary remediation programmes.
Each of the above measures must, of course, be implemented and developed in accordance with precise criteria and guidelines to ensure the best possible outcome is achieved
6. Conclusion
Judgment C-744/24 of 23 April 2026 clarifies that the banking practice of capitalising ancillary costs (primarily insurance premiums) into the nominal amount of the loan and applying the borrowing rate to that amount — widespread both in the markets of Central and Eastern Europe and, to varying degrees, in the Italian market — is incompatible with EU law. Italian banks are required to make rapid and systematic adjustments, both to products currently on the market and to their existing portfolios, in order to limit their exposure to the legal, regulatory and reputational risks arising from the judgment.
For banks and financial companies, the greatest risk lies not so much in the impact on new contracts — which can easily be rectified through amendments to documentation and pricing — but in the retrospective exposure arising from a multitude of transactions concluded in previous years in which insurance premiums, commissions or other costs were incorporated into the basis for calculating interest.
The ruling could therefore usher in a new wave of consumer litigation in Europe, with a particular impact on bancassurance distribution models and the financing of ancillary costs in consumer credit agreements.
