German Federal Court of Justice finds handling fees in general terms and conditions of loans in the B2B-sector to be invalid – substantial repayment claims possible
2. Reasoning of the BGH
In its recent decisions dated 4 July 2017 (ref. no. XI ZR 562/15 and XI ZR 233/16) the BGH has clarified that also in respect of loan agreements between credit institutions and borrowers from the business sector, no handling fee without connection to the loan's term may be charged within Ts&Cs and that such clauses are invalid. According to both decisions the decisive argument of the BGH is – as has equally been in the former decisions in connection with consumer loans –, that according to the fundamental principles of German statutory law costs for a loan can only be charged in relation to the term of the loan, such as interest payments. A handling fee in the form of a one-time lump sum payment is in conflict with these principles. According to the BGH banks have to cover their costs regarding handling, processing and disbursement of the loan by means of interest payments that are based on the loan's term. In general, banks are not allowed to charge additional handling fees without connection to the loan's term within Ts&Cs. According to the BGH, borrowers from the business sector require protection just like consumers from banks having the sole power over drafting the loan terms.
3. Under what cirumstances can fees still be charged?
In addition to interest payments any charges, such as handling fees or administrative fees, irrespective of their name, may only be charged if they have been negotiated in the particular case or, if included in Ts&Cs, if those fees cover special services being provided in addition to the granting of a loan. No special services in this regard are for instance all such services that
- the bank has to provide already by law;
- the bank has to provide as an ancillary contractual duty (in particular ongoing administrative services)
- are predominantly in the self-interest of the bank.
Therefore, banks may presumably charge their customers for example for the bank's subordination statements regarding land charges (Grundpfandrechte) that a consumer has requested. Those costs would be objectively justified since the bank provides special services by granting the subordination statement. Also, it can be assumed that banks are allowed to charge a fee for the exchange of credit securities even in the light of the current BGH decisions.
4. Repayment claims and statute of limitations
Considering this new jurisprudence, companies will assess whether they can claim back already paid handling fees from their banks. During such an assessment they will have to pay close attention in particular to the time limitations of such repayment claims. In regard to the statute of limitations the BGH clarifies in its decisions that repayment claims for already paid handling fees in the B2B sector will be subject to the general statute of limitations of the German Civil Code, which is three years. The limitation period starts at the end of the calendar year in which the borrower has paid the handling fee.
This would mean that in general all handling fees that have been paid starting from and including the year 2014 could be reclaimed. However, repayment claims regarding handling fees paid before the year 2014 are time-barred in general. Nevertheless, time-barred repayment claims can be set-off against claims of a bank if (a) the repayment claim was not time-barred when the borrower was able to set-off against the bank's claim for the first time or to deny the bank's claim for the first time and (b) the bank's claim against which the set-off is supposed to take place, can still be satisfied today.
5. What are potential implications for bank account fees?
Closely related to the topic of invalidity of handling fees is the question of validity of bank account fees. A bank account fee is a periodically reoccurring payment from a customer to a bank during a loan's term and which accounts for the bank's services provided in connection with the administration of the loan. For consumer loans the BGH has ruled on 9 May 2017 (Az. XI ZR 308/15) that bank account fees within Ts&Cs are invalid. Here as well the BGH based its decision on the reasoning that the bank's administrative services are mainly provided in the bank's self-interest and that therefore the bank may not transfer the related costs to the customer. Contrary provisions would collide with the fundamental principle of German statutory law, according to which the only compensation due for the loan during the loan's term is the interest.
In the light of the above outlined court decisions regarding handling fees, it must be assumed that account fees within Ts&Cs regarding loans for customers from the business sector are equally inadmissible and that courts may therefore declare such account fees to be invalid. Nevertheless this question has not yet been clarified by courts. However, banks are well advised to remove such account fees from their Ts&Cs. It can also be expected that companies will examine potential repayment claims in such cases as well.
6. Conclusion
Overall it can be stated that in the future any payment obligations of a borrower – whether a consumer or someone from the B2B-sector – for a loan set out in Ts&Cs, will generally have to be reflected only in the interest rate margin. Therefore banks will presumably have to raise the term based interest rates to financially compensate the omitted administrative and account fees. Only for special services in the interest of the borrower, banks will be allowed to charge extra fees within Ts&Cs continuously in the future. Besides provisions within Ts&Cs, banks can still charge extra fees for services if such fees are individually negotiated between the parties. It is also imaginable that banks will make their agreements in the B2B-sector subject to another choice of law in order to avoid the consequences of the above portrayed jurisprudence at least until other countries have followed.
With regard to possible repayment claims companies will (have to) evaluate what payments have been made to the banks in the past that can be reclaimed and that are not yet subject to the statute of limitations. Banks will have to prepare for the corresponding claims of their customers and perhaps have to establish provisions for losses.
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Your kallan Banking and Finance Team
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Dr Christina Griebeler, M.I.C.L.
Lawyer (Rechtsanwältin),
Advokat (Sverige), Partner
T +49 - 69 - 97 40 12 - 39
M +49 - 172 - 677 53 72