Legal Analysis of Compound Interest in Ecuador

Abstract

This scientific article provides a legal analysis of the existence of the practice of anatocismo (compound interest) in the renegotiations of monetary obligations proposed by Financial Institutions in Ecuador through a supposed mutual contract that essentially contains the application of compound interest. Compound interest involves the charging of interest on interest or the accumulation of interest onto the principal amount. This practice by Financial Institutions is prohibited by the Constitution and Article 2113 of the Civil Code, which explicitly forbids stipulating interest on interest. Therefore, no mutually agreed-upon arrangement should contain practices that are prohibited or violate the normative parameters established in Ecuadorian legislation. The methodology employed adopts a qualitative approach with a descriptive scope, utilizing scientific methods. The results obtained are based on the fact that, during the renegotiation or novation of the primary monetary obligation into a second obligation referred to as refinancing or restructuring, it leads to the inclusion of interest on interest. The absence of legal regulation regarding compound interest leaves debtors in a vulnerable position, and the judiciary lacks a clear regulatory framework for resolution.