Update: Ways out of real estate financing - No early repayment penalty in case of insufficient information on the calculation of the VFE; BGH (XI ZR 320/20) confirms decision of the OLG Frankfurt

In rejecting Commerzbank’s non-admission appeal (Ref.: XI ZR 320/20) against the judgment of the Higher Regional Court of Frankfurt (Ref.: 17 U 810/19), the Federal Court of Justice confirmed the protection of bank customers in the event of an exit from real estate financing without an early repayment penalty if the customer was not sufficiently informed about the calculation method of any VFE when the contract was concluded. We already reported on the previous decision in our article Auswege aus der Immobilienfinanzierung – Keine Vorfälligkeitsentschädigung bei unzureichender Information über die Berechnung der VFE. Now, the Federal Supreme Court (BGH) has also strengthened the rights of consumers and thus confirms its previously expressed legal opinion (see BGH, judgment of 28 July 2020 – XI ZR 288/19).
In its decision, the BGH agrees with the content of the OLG Frankfurt and does not consider further clarification of the matter to be necessary. While this represents a significant setback for banks, borrowers find themselves in a strengthened position.
In the previous decision, the Higher Regional Court of Frankfurt came to the conclusion that there was no legal ground for the early repayment penalty. The information on the basis of calculation had not complied with the legal requirements, therefore the bank had lost its claim to an early repayment penalty, cf. section 502 (2) no. 2 BGB. As a result, it could be reclaimed from the borrowers. We have numerous other formulations on the calculation method that are to be considered insufficient.
The ruling, which has now been confirmed by the BGH, will also have considerable significance for the clients of other banks. Although the contract forms of many banks have already been revised, they are often still vulnerable. Consumers now have the possibility, if necessary, to escape an early repayment penalty by invoking the new case law. This applies to all contracts from 22.03.2016 onwards, because from this date at the latest, the banks were in principle obliged to properly instruct their customers.
If you have any questions on the subject of early repayment fees, please contact us. We are happy to advise you!

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The revocation gives consumers the opportunity to detach themselves from the contract by unilateral declaration.

Power of revocation for loans

Overwiev

The power of revocation gives consumers the opportunity to detach themselves from the contract by unilateral declaration. The period is 14 days, but does not begin until the consumer has been informed of the existence of the right of withdrawal, the legal consequences of the withdrawal and other information. For certain periods of time, the revocation instruction must also have been clearly and clearly textually removed, i.e. clearly recognizable.
Since the reform of the debt law in 2002, the right of withdrawal and the requirements for proper information, in particular in the case of the revocation of loan agreements, has undergone numerous amendments (recast BGB information obligations regulation, [BGB-InfoV] consumer credit directive, [CCD] law on the introduction of a model revocation information, consumer rights directive, [CRD] housing credit directive) [MCD]

The power of revocation applies in principle to loan agreements for consideration (and new granting of a right to use capital in the event of contract renewals; to examine in detail whether prolongation, novation, forward loans constitute genuine sectional financing) between a trader as a lender (bank/credit institution) and a consumer (even own asset management can fulfil the consumer concept) as a borrower.

Incorrect revocation instructions

According to a study by the Hamburg Consumer Center, about 80% of the audited revocation instructions of various banks were incorrect.
Due to the legal situation at the time, a so-called “eternal right of revocation” arose due to incorrect instruction. If it was not properly informed, i.e. erroneous, the time limit for exercising the revocation did not start to run.
Many consumers, starting in 2014, took advantage of their opportunities and successfully recalled both current and terminated loan agreements. In the case of current loan agreements, the obvious advantage was that one could refinance by means of another significantly lower-interest loan and, if necessary, even had to repay less by interest on the repayment portion of the respective monthly installments – and this without any prepayment compensation.

"Eternal power of revocation"

The legislature has recognized this and the so-called “eternal right of withdrawal” by recasting Article 229(38).3 3 Sentence 1 ETUC for contracts between 01.09.2002 and 10.06.2010 abolished. The “abolition” refers only to old contracts during this period and so-called real estate consumer loan contracts, i.e. the eternal power of revocation for all other contracts continues (with the exception of real estate consumer loan contracts from 21.03.2016, Section 356b of the German Civil Code). The following therefore applies to the revocation:
– Contracts from 11.06.2010 to 21.03.2016: The “eternal power of revocation” continues to apply if the revocation policy is incorrect.
– Contracts from 21.03.2016: General consumer loan agreements are still revocable. For real estate consumer loan agreements the revocation is extinguished no later than 12 months and 14 days.
In the period July 2010 to the present day alone, the statutory model revocation instructions (some of which were also incorrect) were amended four times.
Many cancellation policies during this period were therefore flawed.
Both the legal model instructions and the identical instructions used by the banks and credit institutions included the following reference to the beginning of the period as of about July 2010:
„[…] but only after the borrower has received all the mandatory information in accordance with Section 492 paragraph 2 of the German Civil Code (e.g. indication of the type of loan, indication of the net loan amount, indication of the duration of the contract) […].

ECJ decision, Case C 66-19 of 26 March 2020

The European Court of Justice has now ruled in this regard by judgment of 26 March 2020, in Case C-66/19.

Cascade referral incomprehensible

According to the reasons for the judgment, revocation instructions for all loan contracts must state in a clear and concise form the modalities for calculating the withdrawal period. The purpose of the revocation policy is to provide the consumer with a high degree of protection, otherwise the effectiveness of the right of withdrawal would be undermined.
„ The referring court therefore finds that the mandatory information which is granted to the consumer […] is relevant to the commencement of the period for revoking the contract is not, as such, included in the contract at issue. In order to find out, the consumer must therefore deal with a large number of national provisions contained in various legislative works. […] that a reference in the Contract at issue to the national legislation at issue […] does not affect the […] It is sufficient to inform the consumer […] in a clear and concise form of the time limit and the other arrangements for exercising the power of revocation.“
If the revocation instruction is therefore incorrect as above or in the examples below there is the possibility of revoking the contract.

Legal consequences of revocation

The advantage of the customer now to exercise his power of revocation can be found in the legal consequences.
The revocation converts the loan agreement into a return debt relationship with effect for the future (ex nunc). The reciprocal benefits must in principle be granted back after revocation.
In the case of a loan agreement, a right to use capital is granted against payment of interest.

Bank's claims against the customer

The customer has therefore to repay the amount of the loan paid out to the bank. Instalments already paid (in the case of annuity loans) consist of an interest rate and a repayment share. The repayment portion of the instalment serves the loan repayment entitlement. In addition to the reimbursement of benefits the law also provides for the replacement of the benefit of use (section 346 paragraph 2 sentence 1 of the German Civil Code (BGB)). This is the interest on the loan capital provided by the bank, i.e. in case of doubt the contractual interest rate. However, the consumer can usually prove that the benefit was lower, i.e. (in addition to other credit conditions) he has agreed with the bank a higher interest rate than the market rate.

Customer's claims against the bank

In principle the bank has to repay the interest and repayments paid to the customer. Here, too, however, the bank owes the replacement of drawn uses (Section 346 paragraph 1 half-sentence 2 BGB). This means that payments by the customer are interest-bearing at 2.5% points above the base rate for real estate consumer loan contracts and 5% above the base rate for general consumer loan contracts. Here, too, it is (only) refutable suspected that the bank has drawn up uses at this level. It remains to the bank to prove lower usages. In practice, however, this will not happen as the bank would then have to disclose its margins.
Provision interest/commissions paid by the customer have to be paid back as well as any disagios or handling fees paid. In addition the bank shall release all collateral granted to the customer.

Settlement balance/offsetting

After offsetting of the reciprocal claims, a (partly significant) accounting advantage over the regular continuation of the contract usually remains on the consumer side. However, an examination is reserved for the individual case.

For example, if the following instructions have been used, you may be able to to exercise the power of revocation:

revocation information
Power of revocation

The borrower* may withdraw from his contract within 14 days without giving reasons. The period begins after the conclusion of the contract, but only after the borrower has received all mandatory information in accordance with Section 492 paragraph 2 of the German Civil Code (e.g. indication of the type of loan, indication of the net loan amount, indication of the duration of the contract). The borrower shall have received all the required information if it is contained in the copy of his application intended for the borrower or in the copy of the contract deed intended for the borrower or in a copy of his application or document intended for the borrower and such a document has been made available to the borrower. The borrower may subsequently be informed of any mandatory information not included in the text of the contract on a durable medium; the revocation period then is one month. The beginning of the revocation period has to be pointed out to the borrower with the required information. In order to comply with the withdrawal period it is sufficient to send the revocation in good time if the declaration is made on a durable medium (e.g. letter, fax, e-mail). The revocation has to be addressed to: […]“
or

We keep an eye on the current legislation and update this information continuously. Therefore, please pay attention to the topicality in the header of this information.

Power of revocation

The borrower* may revoke his contract declaration within 14 days without giving reasons in text form (e.g. letter, fax, e-mail) [1]. The period begins after the conclusion of the contract, but only after the borrower has received all the mandatory information in accordance with Section 492 paragraph 2 of the German Civil Code (e.g. B. The indication of the type of loan, the amount of the net loan, the term of the contract) has been provided [2]. The borrower has received all the required information if it is included in the copy of his application intended for the borrower or in the copy of the contract document intended for the borrower or in a copy of his application or instrument intended for the borrower and the borrower such a document has been made available. The borrower may subsequently be informed in text form of any mandatory information not included in the text of the contract; the withdrawal period then is one month. The beginning of the revocation period has to be pointed out to the borrower with the required information. In order to comply with the withdrawal period the timely dispatch of the revocation is sufficient. The revocation has to be addressed to: […]“

or

revocation information

Power of revocation

The borrower* may revoke his contract declaration within 14 days without giving reasons in text form (e.g. letter, fax, e-mail) [1]. The period begins after the conclusion of the contract, but only after the borrower has received all the mandatory information in accordance with Section 492 paragraph 2 of the German Civil Code (e.g. B. The indication of the type of loan, the amount of the net loan, the term of the contract) has been provided [2]. The borrower has received all the required information if it is included in the copy of his application intended for the borrower or in the copy of the contract document intended for the borrower or in a copy of his application or instrument intended for the borrower and the borrower such a document has been made available. The borrower may subsequently be informed in text form of any mandatory information not included in the text of the contract; the withdrawal period then is one month. The beginning of the revocation period has to be pointed out to the borrower with the required information. In order to comply with the revocation period the timely dispatch of the revocation is sufficient. The revocation has to be addressed to: [3]

Finally we would like to point out that this information only contains a non-binding overview of the topic addressed. They do not replace legal or tax advice. We are always at your disposal as a contact person for this client information and for advice.