German Federal Court of Justice declares custody fees for savings and call money accounts inadmissible

It was in principle permissible to charge custody fees – also known as negative interest rates – on current accounts, but the specific clauses used in this case were non-transparent and therefore invalid, the BGH found in its ruling (link in German).

Due to the low interest rate policy of the European Central Bank, it was common practice for many banks and savings banks for years to charge custody fees when customers accumulated large sums of money in their accounts. In some cases, this applied to accounts with a credit balance of above €5,000 euros. Market data from a comparison portal shows that at least 455 financial institutions in Germany charged custody fees in May 2022.

Several consumer protection associations filed a lawsuit against this practice. They applied for an injunction and partial repayment of the fees charged as well as information about the affected consumers.

The BGH has now clarified that banks and savings banks are generally not allowed to charge custody fees for balances on savings and call money accounts. These accounts are expressly intended to accumulate credit balances. Charging custody fees changes this main purpose of the contract in breach of good faith, and in a way that unreasonably disadvantages consumers.

However, in respect of current accounts, custody fees are generally permissible, provided that the contractual clauses on the basis of which the fees are levied are transparent, the BGH found. That was not the case in the case in question. The BGH found the contractual clauses to be invalid as they did not sufficiently inform customers about the credit balance to which the custody fee referred. In particular, there were no provisions as to whether the custody fee was to be calculated on a day-to-day basis and up to what point in time daily turnover was to be taken into account.

However, the banks involved in the proceedings do not have to pay back the illegally levied fees directly to affected customers, as demanded by the consumer protection associations. The BGH came to the conclusion that the consumer bodies were not entitled to such claims under the German Act on Injunctive Relief (Unterlassungsklagengesetz). There is also no right to information about the affected consumers. This leaves it up to consumers to recover the fees allegedly wrongly charged.

"Affected banks must be prepared for the fact that their customers will assert claims for repayment of custody fees," said Johanna Weißbach, expert in mass litigation at Pinsent Masons. "We might also see collective actions. Banks should therefore quickly define their strategy and internal processes for handling the repayment claims."