German ruling on terms and conditions: banks should act now

Banks using certain clauses in their terms and conditions in Germany need to review those terms and conditions and develop a strategy for dealing with clawbacks after a ruling by Germany’s Federal Court of Justice.

The court ruled that clauses on ‘fictitious consent’ in the event of changes to banks' general terms and conditions (GTCs) were invalid. The full ruling has now been published, showing for the first time the scope of the decision.

In April the Federal Court of Justice (Bundesgerichtshof/BGH) declared clauses in the GTCs of a bank invalid, as they stipulated without restrictions that customers agree to an amendment of the GTC by not reacting to its announcement, known as fictitious consent.

Banks operating in Germany that use the same or similar fictitious consent clauses in their GTC should act now: The GTC used should be adjusted. Banks should also be prepared for customers reclaiming ineffectively increased fees based on the ruling.

The ruling

In this case the GTC of a bank said in the section ‘Changes’: "The customer is deemed to have given his consent if he has not indicated his refusal before the proposed date of entry into force of the changes". In a section ‘Change of charges for services typically used on a permanent basis’, the sentence was repeated, meaning it also referred to the change of charges. The clauses were meant to provide for the bank to increase charges if the customer did not object to the changes within the set period. The use of such clauses seemed to be possible so far, as their contents corresponded to the regulations contained in section 675g of the German Civil Code (Bürgerliches Gesetzbuch/BGB).

The Federation of German Consumer Organisations had filed a lawsuit against the clause, the proceedings went through several instances up to the BGH. The Regional Court and the Higher Regional Court in Cologne had dismissed the action, but the BGH ruled in favour of the consumer protectionists. It declared the clauses invalid in this form, as they did not only refer to an adjustment of individual details of the GTC, but allowed for an amendment of the entire GTC.

According to the BGH, the fictitious consent related to charges was also invalid, as it offered the bank the opportunity to shift the balance between service and charge significantly in its favour.

The BGH ruled that such a broad clause, which qualifies the customer's silence as acceptance of the contract amendment, violates essential basic ideas of the legal regulations and puts him at a disadvantage, as customers would have to take action not for, but against the contract amendment. Whether the customer remained inactive because he was overstrained, prevented by illness or actually agreed to the change had no influence on its effectiveness. The clauses  were therefore invalid, said the BGH. According to the BGH, an amendment agreement is necessary "for any far-reaching changes affecting the basis of the legal relationship between the parties, which may be equivalent to the conclusion of a new contract".

Consequences of the ruling

The BGH ruling affects all banks that use clauses that provide for fictitious consent that correspond to the above-mentioned clauses.

Since the BGH refers to the EU directive on unfair terms in consumer contracts, the ruling affects all contracts concluded with consumers. Whether  contracts with business customers are affected as well remains to be seen.

In addition, other sectors of the financial industry may be affected, such as insurance companies, which also implement or have implemented fee increases by means of fictitious consent.

Among other things, there is a threat of claims for reimbursement, as clients who have paid increased fees to their bank on the basis of the above-mentioned clauses or clauses corresponding to them could now try to reclaim those fees. In addition, customers could assert claims for compensation, since the money they may have paid wrongly was not available to them for other use. Claims for interest on arrears from the date of the reminder are also possible.

If ineffective clauses continue to be used, this could have serious legal consequences and, in particular, result in the assertion of claims for damages or injunctive relief.

Limitations to claims

The regular limitation period is three years and begins at the end of the year in which the claim arose and the creditor became aware of the circumstances giving rise to his claim or should have become aware without gross negligence. In any case, clients could thus claim back fee payments from their bank as of 1 January 2018, provided legal action is taken in 2021.

However, it cannot be ruled out that fee payments made further back in time can also be reclaimed from customers: In exceptional cases, the start of the limitation period is postponed if the legal situation is uncertain and doubtful. Whether this applies here remains to be seen.

How to react

Affected businesses should check their contracts to see if identical or similar clauses are used. They should determine how many contracts are affected and how high potential clawbacks could be. Based on this, appropriate provisions should be made.

Also, the clauses should no longer be used and no more contract amendments should be made on their basis. If fees have already been increased on the basis of such clauses, it must be considered on what new basis these fees can be demanded in the future. If necessary, an amendment contract must be concluded between the client and the bank.

In addition, banks should develop strategies for dealing with complaints and recoveries. Key questions are: Are there sufficient resources to deal with the complaints? What defence strategy should be taken? Are special processes required for handling recoveries?