Credit institutions and financial services providers

Number of complaints

In 2016, BaFin processed a total of 5,162 submissions relating to credit and financial services institutions (previous year: 5,890), of which 4,987 were complaints and 175 general enquiries. The figure includes 26 cases where BaFin issued statements to the Petitions Committee of the Bundestag (the lower house of the German parliament). In addition, BaFin received 54 information requests about former banks, and especially their legal successors. The complaints were upheld in 743 cases.

Table 1 Complaints by group of institutions¹

Complaints by group of institutions

* For example, leasing and factoring undertakings. Source: BaFin

Subject matter of the complaints

In 2016, the submissions again reflected the whole range of products and services provided by the supervised institutions. Most of the complaints related to problems with the processing of loans, payment transactions, and account management. But submissions also related to fees for individual services charged for the first time as well as subsequent increases in these fees. Some consumers also voiced concerns about a number of IT failures at some credit institutions, which affected online banking.

Low interest rate environment

For BaFin, the effects of the persistently low interest rates are relevant not only from the perspective of solvency-related institutional supervision, but also in terms of collective consumer protection. The consequences for consumers manifest in a number of very different ways.

For example, institutions have started to charge negative interest or deposit fees on credit balances in current and savings accounts. While initially this affected only wholesale customers and wealthy retail clients who had considerable amounts of deposits, some institutions are now also charging such interest or fees on smaller deposits. If this trend continues, this could affect a significantly larger number of consumers in future. BaFin will be watching this trend.

Institutions also respond to the low interest rate environment by levying charges. Some consumers complained that their bank was charging fees for managing their current account, which was free of charge before. BaFin examines in such cases whether the institution has followed the proper procedure for these types of amendments to the general terms and conditions. BaFin cannot prescribe to institutions how they design their account models and what fees they charge.

Bausparkassen

Bausparkassen customers, too, are feeling the effects of the persistent phase of low interest rates. The way Bausparkassen deal with customers with high-interest legacy contracts varies.

In recent years, there have already been cases where Bauspar contracts have been terminated. The consistent opinion of the courts is that the termination of over-saved Bauspar contracts is permissible. On 21 February 2017, the Federal Court of Justice ruled in principle that Bausparkassen may terminate Bauspar contracts that have met the conditions for granting a loan for more than ten years without the savers having taken out the allocated loan.

In addition, some Bausparkassen introduced account management fees in some tariffs or proposed to their customers that they switch their contracts to different terms as a way of extricating themselves from Bauspar contracts that pay high interest on deposits. Of course, the parties to a Bauspar contract entered into years ago are free to terminate it by mutual agreement and to continue the contractual relationship in a different format. It is for the contracting parties to agree the rules for modifying the contract. Consumers have to make up their own minds whether they are willing to accept such a proposal and whether it will be to their advantage. BaFin ensures in this context that consumers receive comprehensible and comprehensive information about the proposed contract amendment to allow them to make an informed decision based on facts and under their own responsibility. For example, BaFin criticised some allocation notifications because they were incomplete: they detailed various options, but failed to inform savers that they could continue to save under the existing Bauspar contract.

Selected cases

Processing of variable-interest loans

One consumer complained that, after the fixed-interest period had expired, his bank had quoted an incorrect interest rate for continuing his real estate mortgage loan on a variable-interest basis. He claimed the interest rate was too high and had not been determined in accordance with the interest rate adjustment clause agreed in the contract. He maintained that the loan should have been continued at a significantly lower borrowing rate.

When BaFin queried this, the bank conceded that it had determined the wrong interest rate for the customer's loan. It attributed this to faulty encryption in the electronic capture of loan details in the bank's system. It turned out that other agreements this bank had entered into were also affected by the faulty encryption. The institution responded by correcting the fault.

Consumer credit with payment protection insurance

A customer entered into a consumer loan agreement and opted for payment protection insurance at the same time, which was to insure against the risk of incapacity to work, among other things. When the insured event occurred, the insurer refused to cover the loan instalments. The reason for the lack of cover was, however, not attributable to the insurer, but to the way the contract between the bank and the customer had been arranged. In the bank's opinion, the customer had opted for "payment protection life insurance with additional accident insurance and payment protection work incapacity insurance", but according to the documents the box required to be ticked separately to opt into the desired insurance policy had not been ticked.

In response to intervention by BaFin, the institution had to concede that the contractual arrangement was misleading and it was not immediately clear that an additional declaration was needed to get the insurance cover. In response, the bank agreed to assume the payment of the loan instalments not only in this specific case, but promised to do so in all other similar cases. The institution has since revised the wording of the agreement.

Online publication of overdraft interest rates

The German Act Implementing the Mortgage Credit Directive (Gesetz zur Umsetzung der Wohnimmobilienkreditrichtlinie)² entered into force on 21 March 2016; among other provisions, it introduced rules intended to make the amount of overdraft interest charged more transparent and to afford better protection to consumers using overdraft facilities. One of these rules requires banks and savings banks to publish overdraft interest rates prominently on their websites.³ In this way, interest rates can be compared quickly and easily. Another intended outcome is to make it more difficult for banks to charge unreasonably high interest on overdrafts.

During spot checks, BaFin found that some institutions had not disclosed the overdraft interest rate online as required by law. Prompted by BaFin's intervention, the institutions concerned ensured immediately that the information was published as required.

Investment and asset management companies

As part of investment supervision, a total of 137 complaints and queries were received from consumers in 2016.

They related to, among other things, the proper liquidation of investment compartments, the calculation of unit performance, the appropriation of income, compliance with publication requirements, fund management costs, the requirement on asset management companies to provide information to investors and possible errors in giving investment advice.

BaFin followed up on the information in each individual case, where necessary asked the complainants for further explanations, and requested any pertinent comments from the supervised companies. There was, however, rarely any need to take further supervisory measures.

Closed-ended funds

Although most of the submissions on closed-ended funds related to legacy funds managed by asset management companies supervised by BaFin or companies affiliated with them, these funds are not subject to the provisions of the German Investment Code (Kapitalanlagegesetzbuch). In these cases, BaFin informed the complainants and petitioners of this fact and referred to the option to commence civil proceedings or to seek out-of-court dispute resolution.

Open-ended real estate funds

The queries on open-ended real estate funds primarily concerned the liquidation of open-ended real estate funds for retail investors. For example, investors wanted information about the duration of the liquidation phase, adjustments to the market values of fund properties, or when to expect the repayment of the funds invested from an open-ended real estate funds for retail investors in liquidation. BaFin asked the asset management companies or depositaries for comment.

Insurance undertakings

Complaint figures

In 2016, BaFin completed the handling of 7,985 submissions relating to the insurance sector. However, since this figure for the first time includes only those submissions for which BaFin is the competent authority, it is not possible to compare it to the prior-year figure (9,746). A comparison of the data for the respective classes of insurance provided in Table 2 shows that 7,830 submissions (previous year: 8,188) were attributable to all insurance classes put together. They break down into 7,361 complaints, 370 general enquiries and 99 petitions, which reached BaFin via the German Bundestag or the Federal Ministry of Finance (Bundesfinanzministerium – BMF). 29.8% (previous year: 26.6%) of these submissions ended in success for the parties that made them.

Table 2 Submissions received by insurance class since 2012

Submissions received by insurance class since 2012

* Until 2015: misdirected correspondence, intermediaries, etc.; since 2016: intermediaries. Source: BaFin

The reasons for complaints vary (see Table 3 "Most frequent reasons for complaints in 2016").

Table 3 Most frequent reasons for complaints in 2016

Most frequent reasons for complaints in 2016

Source: BaFin

Selected cases

Cost of transferring Riester contract

One complainant had a pension insurance policy with Riester subsidy and wanted to transfer the accumulated pension assets to a Riester pension insurance policy at another insurer. However, for the transfer, the new insurer charged costs of 4.5% of the amount transferred. The complainant argued that the costs should not have been charged, because they had not been contractually agreed.

BaFin's examination found that neither the insurance policy nor the insurance terms and conditions or any other contract documents provided any legal basis for charging transfer costs when switching providers. There is no legal obligation either in, say, the German Pension Contracts Certification Act (Altersvorsorgezertifizierungsgesetz).

On this basis, the insurer conceded that there was in fact no provision in the contract that allowed transfer costs to be charged. The undertaking reversed the transfer costs plus interest and credited the policy account value. It has now adopted a similar approach to similar cases and is also using a different version of its quotation software. This will allow it in future to agree costs for transferring pension insurance policies in the contract documents, but only up to the legal maximum of €150.⁴

Continued entitlement to benefits under emergency tariff

A complainant whose contract had been assigned to the emergency tariff because of late payments and who had moved his habitual place of residence to another EU country (Spain) filed a claim for the reimbursement of expenses incurred with his private health insurer. However, the insurer refused to cover the costs, arguing that the complainant had moved his habitual place of residence to another EU country. The complainant did not agree with this decision, and for good reason, as it turned out.

If an insured person moves their habitual place of residence to another member state of the European Union or another signatory to the Agreement on the European Economic Area (EEA), the insurance contract remains in force, with the proviso that the insurer will only remain obliged to pay up to the level of benefits that it would have had to pay if the person had remained in the original country of residence. This is specified in section 207 (3) of the German Insurance Contract Act (Versicherungsvertragsgesetz). For the emergency tariff, this is additionally specified in section 1 (6) of the 2013 general insurance policy conditions. Under the emergency tariff, there is a statutory minimum insurance cover for emergency treatments (section 153 (1) of the German Insurance Supervision Act (Versicherungsaufsichtsgesetz)). Assuming emergency treatment was required for the complainant, the insurer would therefore have had to reimburse the policyholder at the benefit level applicable in Germany.

After a hearing with the insurer, the undertaking acknowledged that its previous policy of rejecting claims after the habitual place of residence had been moved to another EU country was wrong. In the complaint under review, the insurer therefore agreed to settle and in addition revised its internal guidance on processing benefit claims in the emergency tariff.

Unilateral contract modifications

Following the introduction of a new contract portfolio system, an insurance undertaking made the residential building insurance policy of a complainant subject to new insurance terms and conditions. They contained, among other things, a premium adjustment clause, which allowed the insurer to take future loss and cost trends into account when calculating the insurance premium. The terms and conditions of the contract the complainant entered into in 1995 did not include such a clause. Although the insurer undertook in its letter that such a premium adjustment would only be permitted after one year at the earliest, it was a unilateral contract modification made without the policyholder's consent. Unilateral contract modifications are, however, only permissible and binding if they are exclusively legally beneficial for the other contracting party.

BaFin asked the insurer for comment and queried whether other policies were affected by this switch. It turned out that another 21,251 residential building insurance policies had been made subject to the same new contract terms and conditions, which were detrimental to the customers.

Moreover, the insurer disclosed that, in the case of 5,685 policies, the flag preventing premium adjustments due to losses in the first year after the switch had not been set correctly, so that premiums were nevertheless adjusted in these cases. In the meantime, the insurer has written to the affected customers and ordered repayment.
When prompted by BaFin, the insurance undertaking ultimately gave an assurance that, in the case of all the affected policies, it would not invoke this clause even after the end of the first year following the switch.

Securities transactions

In 2016, the total number of submissions received from investors in relation to securities transactions was down on the previous year. The number of complaints filed directly with BaFin amounted to 493 (previous year: 581); in addition, there were 188 written enquiries from investors (previous year: 281).

However, in 2016, BaFin again received a large number of complaints from customers of companies domiciled in Cyprus offering cross-border services. The complainants had been persuaded by the Cypriot companies through electronic media to enter into binary option contracts or contracts for difference, with a minimum investment of as little as €250. In subsequent telephone calls, individuals whose actions are to be attributed to the companies in question, offered interested investors a so-called bonus payment in the amount of the contribution the customer had already made. In this process, they failed to inform the customers that they would only have a right to repayment of any remaining balance once they had "traded" forty times the amount invested and the bonus amount. Effectively, this meant that any repayment claim by the customer was invariably excluded. In addition, it was not made clear to customers that trading losses would consume the amount paid in, but not the bonus. What is more, the providers persuaded inexperienced customers, for whom the products in question were not suitable, to enter into contracts by promising them high returns, which they were supposed to generate by following the trading recommendations made by the company.

In the case of companies that purely conduct cross-border services, it is in principle the national competent authority which monitors whether the companies comply with the rules of conduct in their dealings with customers. Accordingly, BaFin informed the respective customers of their right to file a complaint with the Cyprus Securities and Exchange Commission (CySEC). If the customers consented, BaFin for its part also informed CySEC about the nature of the complaint. On this basis, CySEC wrote to the Cypriot securities trading firms on 30 November 2016, informing them about its administrative practice with regard to these types of transactions.

Consumer helpline

Citizens can call BaFin's consumer helpline at +49 (0) 228 299 70 299. In the past year, the advisers dealt with 20,088 (previous year: 22,586) queries about the financial market, specific issues relevant to consumer protection and problems with banks, insurance undertakings or financial services providers. Of these queries, 35% related to the insurance sector and 46% to the banking sector. 10% of calls concerned securities supervision and 9% related to other issues relevant to consumer protection.

The queries submitted by consumers varied widely. A large proportion of the queries on banking supervision related to the decisions of the Federal Court of Justice on early repayment penalties when real estate loans are repaid prematurely⁵ and on handling charges, which are not permitted for Bauspar loans.⁶ Many callers also wanted to know what the statutory prerequisites were for being entitled to a basic payment account and for what reasons an application could be rejected. Other areas of concern were account management fees and interest on overdrafts. Questions on securities supervision focused primarily on the providers' obligation to give advice and the informational value of the securities prospectuses. As in the previous year, the insurance enquiries related in particular to the total sums paid out under life insurance policies, given the current phase of low interest rates.

At the beginning of July 2016, BaFin added the co-browsing feature to the consumer helpline service. It allows consumer helpline advisers to navigate to websites together with callers. This is a convenient way in which callers can be guided through the structure of websites or databases.

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