Thomas Burgwinkel, BaFin
Personal loans: Ruling on processing fees
Through two rulings (ref. no. XI ZR 405/12 and XI ZR 170/13), the German Federal Court of Justice (Bundesgerichtshof – BGH) has clarified a legal question regarding the permissibility of processing fees for personal loans which had remained unresolved for many years and which various higher regional courts had assessed differently.1
The XI Civil Division of the Federal Court of Justice has now declared that pre-worded provisions regarding processing fees are not permissible in loan agreements concluded between credit institutions and consumers.2 Consumers who have paid fees on the basis of such agreements may claim their reimbursement.
The Federal Court of Justice has justified its ruling on the grounds that charging of a processing fee not linked to a specific term – in addition to the agreed interest – is not consistent with the legal principles stipulated in section 488 (1) sentence 2 of the German Civil Code (Bürgerliches Gesetzbuch – BGB). According to the Federal Court of Justice, the borrower is thus obliged to pay stipulated interest and, as of the due date, to repay the loan granted. The costs for processing and disbursement of the loan may only be covered through term-linked interest.
The Federal Court of Justice faced different sets of provisions in these two cases. While in the first case the fee was indicated in the notice of charges, the other case related to a fee for an online loan agreement. This was declared as a fee for provision of capital, calculated on the basis of the value of the loan and subsequently entered in an empty field in the deed.
Part of general terms and conditions
The Federal Court of Justice has rejected the argument put forward by some credit institutions that the processing fee does not form part of general terms and conditions due to its agreement in an individually stipulated contract. According to the Federal Court of Justice, for the inclusion in general terms and conditions, it is sufficient if the credit institution, as the user of this clause saves the provision ‘in its head’ for regular use in future contracts and inserts it in the deed in line with the details of the individual loan agreement.3 Accordingly, in mass retail financial services in all probability there is virtually no scope for the inclusion of processing fees in individually stipulated contracts.
However, the current rulings have left unclarified the period for which paid fees are reimbursable. Pursuant to section 195 of the BGB a regular time bar of three years applies, and this period will only begin to elapse as of the end of the year (section 199 of the BGB). Accordingly, only fees paid after 1 January 2011 would be reimbursable. However, the German consumer associations assume that consumers may claim reimbursement of any fees paid over the past ten years. They have cited two previous rulings of the Federal Court of Justice (ref. no. XI ZR 504/07 and XI ZR 309/09). According to these rulings, exceptionally the time bar period will not begin to elapse in case of an uncertain and doubtful legal situation which even a layperson familiar with the law would be unable to assess. In this case, the reasonable expectation that an action should be filed – as a general precondition for the start of the time bar period – does not apply.
Two appeals are currently pending before the Federal Court of Justice regarding the issue of whether this applies for unjustified processing fees (ref. no. XI ZR 348/13 and XI ZR 380/13). There is a need to clarify whether the lack of a ruling from the Federal Court of Justice on the permissibility of processing fees for consumer loans in itself amounts to an “uncertain and doubtful legal situation”, particularly since most of the higher regional courts have assumed that such fees are not in fact permissible. The Federal Court of Justice is expected to issue a ruling by the end of the year.
Processing fees versus arrangement fees for building savings contracts
Clauses in general terms and conditions of business regarding processing fees for consumer loans are not equivalent to the arrangement fees charged for building savings contracts. The Federal Court of Justice already expressly endorsed this view in December 2010 (ref. no. XI ZR 3/10). An arrangement fee does not constitute an inappropriate disadvantage for the building society saver. While this fee covers sales of buildings savings contracts and thus financing of costs for field-service employees, this is not exclusively in the interests of the building society and also benefits the collective interests of the buildings savings community. This collective operates on the basis of continuous new incoming funds as new clients are acquired, so that these building savings contracts can be (promptly) allocated for disbursement.
Tips for consumers
Consumers should contact their bank and request repayment of processing fees, citing the rulings of the Federal Court of Justice. Sample letters are available for this purpose from the consumer associations.
If their bank refuses to reimburse these fees, consumers should contact a consumer association and/or a lawyer and obtain an assessment of the legal situation, particularly regarding the prospects of success in a legal dispute. BaFin is unable to assess the legitimacy of a claim for reimbursement, and nor is it able to require a bank to reimburse these charges on behalf of a consumer.
Certain cases may also be clarified out of court, with the help of the ombudsmen of the banking associations. Details of the relevant contacts may be found on BaFin’s website. Conciliation proceedings are not only free-of-charge but also risk-free for bank clients: if they do not agree with the mediator’s decision, they remain free to bring the matter before a court..
1 For instance, the Higher Regional Court (Oberlandesgericht) in Bamberg (ref no. 3 U 78/10 of 4 August 2010) and the Higher Regional Court in Karlsruhe (ref. no. 1 U 192/10 of 3 May 2011) reached a different assessment than the Higher Regional Court in Celle (ref. no. 3 W 109/09 of 2 February 2010).
3 Press release from the Federal Court of Justice no. 80/2014.