I. INTRODUCTION
The Constitutional Court noted that the institution of interest serves to compensate the creditor for the loss in value incurred due to delayed payment and constitutes not merely recompence for the creditor’s sacrifice, but also a fundamental mechanism that prevents the erosion of claims, protected as property under the Constitution, against inflation and maintains the purchasing power of money. As the Constitutional Court’s settled case-law indicates, when claims protected under the right to property are paid late, mechanisms capable of compensating for inflation-induced loss are indispensable. However, the fixed statutory interest rate under the existing legal framework, coupled with the limited authority to adjust that rate, is inadequate to preserve the real value of monetary claims against inflation. According to the Constitutional Court, this inadequacy creates an incentive for debtors to defer payment while inflicting significant economic loss on creditors due to the erosion of the purchasing power of their money.
II. THE SUBJECT MATTER AND GROUNDS OF THE CONSTITUTIONAL CHALLENGE
1. The Application and Its Basis
The application sought annulment of Article 1 of the Interest Law on the ground that it contravenes various provisions of the Constitution (Articles 2, 5, 10, 13, 35, 36, 125 and 138). Kahramanmaraş 3rd Administrative Court (the “Referring Court”), hearing a compensation action against public authorities for pecuniary and non-pecuniary damages arising from the destruction of immovable property during an earthquake, was of the opinion that the statutory interest rule to be applied was unconstitutional and therefore referred the matter to the Constitutional Court.
2. The Impugned Provision and Its Scope
The provision challenged is Article 1 of the Interest Law. This article stipulates that, in cases where interest is payable under the Turkish Code of Obligations No. 6098 (the “TCO”) or the Turkish Commercial Code No. 6102 (the “TCC”), but no contractual rate has been set, an annual statutory interest rate of 12% shall apply. The article further authorizes the President to determine this rate on a monthly basis and to increase it up to twofold or decrease it to one-tenth. The rule applies not only to contractual obligations but also to non-contractual obligations, such as tort and unjust enrichment. Given that the case underlying the referral concerns a non-contractual monetary claim (a tort-based compensation action arising from an earthquake), the Constitutional Court limited its review to the rule’s application to “non-contractual obligations.”
3. Grounds for the Annulment Request
The Referring Court based its request for annulment on the following grounds:
(1)Inadequacy Against Inflation: During periods of high inflation, a substantial gap emerges between the statutory interest rate and the actual inflation rate, rendering the former inadequate to compensate for the loss in value of the creditor’s money.
(2)Lack of Safeguards: The rule contains no safeguard mechanism capable of preventing the depreciation of money. The President’s limited authority to increase the statutory rate is likewise insufficient.
(3)Rights Violations: These inadequacies infringe the right to property as well as the principles of legal certainty and foreseeability.
(4)Inequality: Interest rates on deposits, loans, credit cards, overdraft accounts, advances on commercial transactions, and the State’s own overdue receivables vastly exceed the statutory interest applicable to citizens’ claims, thereby violating the constitutional principle of equality.
III. THE COURT’S INFLATION RESPONSE AND ITS CONNECTION TO THE DECISION DATED 8 JULY 2025 ON ADDITIONAL DAMAGES
Another recent decision addressing the depreciation of monetary claims in a high-inflation environment is the Constitutional Court’s pilot judgement dated 8 July 2025, application no. 2024/41763 (the “Decision dated 8 July 2025”). In that judgement, the Constitutional Court held that the institution of additional damages under Article 122 of the TCO is insufficient to prevent the loss of value suffered by creditors and that this inadequacy violates the right to property and the right to an effective remedy. The Constitutional Court observed that default interest rates applied when a debt is not paid on time often fail to counterbalance the loss of purchasing power of money, thereby preventing creditors from being made whole. It further determined that the mechanism of additional damage, owing to its stringent burden of proof, does not operate effectively. The inadequacy of another mechanism designed to compensate such losses, namely the statutory interest regime, is the subject of the Decision dated 22 July 2025. In both decisions, the Constitutional Court underscored that, when claims are paid late, the creditor must receive interest at least sufficient to counter inflation in order to protect individual rights and public order. The statutory mechanisms currently in place have proven ineffective in safeguarding the value of money against inflation, resulting in violations of Articles 35 and 40 of the Constitution.
In the Decision dated 8 July 2025, the Constitutional Court identified the lack of an effective statutory mechanism as a structural problem and employed the pilot-judgement procedure. In the Decision dated 22 July 2025, by contrast, it concluded that Article 1 of the Interest Law is unconstitutional and annulled the provision.
IV. THE CONSTITUTIONAL COURT’S REASONS FOR ANNULMENT
In examining the constitutionality of Article 1 of the Interest Law, the Constitutional Court grounded its annulment predominantly on the right to property and the right to an effective remedy. The Constitutional Court’s analysis focused on how monetary claims erode in an inflationary environment and how the current statutory mechanisms fail to prevent this erosion.
1. Protection of Claims Under the Right to Property
The Constitutional Court based its assessment on Article 35 of the Constitution, which safeguards the right to property. According to the decision, the right to property encompasses not only movable and immovable property, limited real rights established over them, and intellectual property rights, but also any kind of proprietary right that represents an economic value and is measurable in monetary terms. In this context, it is accepted that any enforceable claim also falls within the scope of constitutional protection afforded by the right to property.
Noting that an interest claim is an accessory right attached to a monetary claim, the Court stated that monetary claims subject to statutory interest—claims that can arise only where there is a principal monetary claim—constitute “property” within the meaning of Article 35 of the Constitution. As a result of this determination, the depreciation of such claims due to inflation was addressed within the framework of incompatibility with the right to property, which is a fundamental right.
2. Positive Obligations of the State and the Right to an Effective Remedy
The Constitutional Court emphasized that the protection of the right to property imposes on the State not only negative obligations, such as refraining from interference, but also positive obligations requiring the adoption of protective and remedial measures. Proceeding from this point, the Court stated that these positive obligations necessitate the establishment of compensatory legal and administrative mechanisms capable of eliminating the effects of interferences with property. In this context, the right to an effective remedy, as regulated under Article 40 of the Constitution, was also taken into consideration. As noted by the Constitutional Court, the right to an effective remedy guarantees that a person whose constitutional right has been violated is afforded the opportunity to apply to administrative and judicial avenues that are appropriate to the nature of the right, accessible, and capable of eliminating the consequences of the violation. Accordingly, the State is under an obligation to establish effective legal mechanisms capable of compensating for the depreciation in value of claims falling within the scope of the right to property.
The Court further stated that, in cases where a due monetary claim is paid late, there must exist mechanisms and safeguards capable of compensating for the loss in value suffered by the claim as a result of inflation, and that the applicable interest rates must be of a nature sufficient to counterbalance such erosion in the value of money. Accordingly, for compensation to be considered fair, it is essential that the amount paid to the creditor, after the period during which they were deprived of the sum, does not suffer a loss in value. The Constitutional Court assessed that although the existing statutory regulation provides for the payment of interest at a certain rate in cases of late payment of debt, it lacks effective mechanisms capable of preventing the depreciation of the claim in the face of inflation. For this reason, it was concluded that the legal system does not provide an effective legal remedy capable of preventing the loss of value of monetary claims against inflation.
3. Inadequacy of Existing Statutory Mechanisms
The pivotal element of the judgement is the finding that the statutory interest mechanism is inadequate to preserve the value of monetary claims under inflationary conditions. High inflation erodes the purchasing power of money, resulting in substantial economic loss for creditors when claims are paid late. This loss diminishes the real value of the creditor’s property and deprives the creditor of the ability to use the money as an investment. The statutory interest rate of 12%, even when increased to the maximum of 24% by presidential decree, falls markedly short of compensating such erosion. Interest rates that lag significantly behind inflation incentivize debtors to delay payment and result in unjust loss for creditors, thereby upsetting the fair balance between the parties and undermining public order.
According to the Constitutional Court, during periods of high inflation, yields on instruments such as foreign currency, bank deposits, and treasury bills far exceed statutory interest and default interest rates. This situation benefits debtors and disadvantages creditors. In highly inflationary environments, debtors can earn far greater returns than the statutory interest rate they would pay, by defaulting on their debts and holding onto their money, investing it in various investment instruments. Consequently, they may be tempted to avoid paying their debts. Creditors, on the other hand, suffer an unreasonable economic loss as the money they lose due to late payment depreciates against inflation between now and the date of payment. The Constitutional Court considered this imbalance detrimental to public order and societal confidence.
V. DISSENTING OPINIONS
Judges Muhterem İnce and Ömer Çınar dissented from the majority. According to their view, Article 1 of the Interest Law is not unconstitutional. They argued that the existing legal framework, particularly the mechanism of additional damages under Article 122 of the TCO, already provides an effective means to compensate creditors for inflation-induced losses. In their view, during periods of high inflation, where default interest is insufficient to make the creditor whole, the creditor need not prove such loss separately; consistent with certain precedents of the Constitutional Court and chambers of the Court of Cassation, such loss should either be presumed or imposed without requiring proof. It is stated that there is no need to annul the article regulating the statutory interest rate, as there is already a way to prevent the loss of value of the monetary claims when the strict interpretation of the burden of proof of additional damage imposed on the creditor is abandoned, and the actual problem is not due to the law itself, but to some differences in judicial interpretation and application.
VI. CONCLUSION
In light of the foregoing, the Constitutional Court held that the rule prescribing 12% statutory interest on late payment of non-contractual monetary obligations, along with the President’s limited authority to increase this rate, does not constitute an effective mechanism for compensating the substantial loss of value caused by inflation. The Constitutional Court found that there is no effective legal avenue capable of protecting the creditor’s right to property against inflation’s corrosive effects. This constitutes a violation of Article 35 of the Constitution, and, due to the lack of effective remedial mechanisms, a concomitant violation of Article 40. The State has failed to fulfill its positive obligation by not providing an adequate compensation mechanism to remedy the creditor’s loss. For this reason, the relevant rule was found to be unconstitutional, and its annulment was decided.
Accordingly, the provision was annulled. Considering that immediate annulment would create a legal vacuum detrimental to the public interest, the Constitutional Court ruled that the annulment would take effect nine months after publication in the Official Gazette, pursuant to Article 153(3) of the Constitution and Article 66(3) of Law No. 6216 on the Establishment and Rules of Procedure of the Constitutional Court.
B. KEY TAKEAWAYS
(5)With the decision dated 22 July 2025, the Constitutional Court annulled Article 1 of the Interest Law, finding it unconstitutional in terms of non-contractual obligations.
(6)The central reason for annulment is that statutory interest rates fail to compensate for inflation-induced depreciation of claims, thus violating the creditor’s right to property
(7)Although the provision applies to both contractual and non-contractual obligations, the Constitutional Court limited its review to non-contractual obligations due to the nature of the underlying dispute.
(8)The Constitutional Court underscored the State’s positive obligation to provide an effective mechanism, within the scope of the right to an effective remedy, to compensate creditors for inflation-related losses.
(9)In order to prevent any potential legal gaps, it has been decided that the annulment provision will enter into force nine months after its publication in the Official Gazette.
(10)The Constitutional Court held that the existing statutory interest mechanism lacks the capacity to compensate for inflation-induced losses, resulting in a violation of the right to property and the right to an effective remedy.
(undefined)The Constitutional Court’s decision parallels its pilot judgment of 8 July 2025, which highlighted the inadequacy of the additional damages mechanism in preventing the loss of value of monetary claims.
(undefined)In the face of the loss of value of monetary claims due to high inflation, the statutory interest rate, according to the Decision dated 22 July 2025, and the additional damage provision, according to the Decision dated 8 2025, are insufficient. The problem underlying both decisions is common in this respect.
(undefined)Dissenting judges argued that the mechanism of additional damages already provides a remedy and that the issue stems from judicial interpretation rather than legislative inadequacy.
(undefined)The decision signals the necessity of establishing a new, fair, and effective statutory interest mechanism capable of safeguarding the value of monetary claims in an inflationary environment.
