Credit institutions and financial services providers

Complaint figures

In 2017, BaFin processed a total of 5,587 submissions relating to credit and financial services institutions (previous year: 5,162); 5,425 of them were complaints and 162 general enquiries (see Table 1 "Complaints by group of institutions"). The figure also 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 39 information requests about former banks, and especially their legal successors. The complaints were upheld in 952 cases, including 1 petition.

Table 1 Complaints by group of institutions

Complaints by group of institutions

BaFin

The submissions related to all products and services of the supervised institutions and undertakings. Most of the queries concerned frequently used banking products, such as the current and garnishment protection account, bank transfers and the processing of loan agreements. Other issues raised included the effects of the continuing phase of low interest rates, such as the introduction of negative interest rates on credit balances. Clients were especially critical of increases in existing banking fees or of the introduction of new fees.

Selected cases

Account models and fees

Some consumers approached BaFin because institutions introduced new account models¹ and charged fees for them which had not been levied before. BaFin cannot influence the structures of a bank’s account models, and whether and to what extent it charges account management fees. However, some institutions had amended their general terms and conditions without observing the applicable provisions of the German Civil Code (Bürgerliches Gesetzbuch) relevant to consumer protection.

For example, clients were not informed comprehensively and accurately about their rights if they did not agree to the proposed contract amendment. It was not pointed out that – in addition to the option to object – they also have the right to terminate the contract free of charge and with immediate effect (section 675g (2) sentence 3 of the Civil Code). In another case, it was wrongly suggested to clients that they had to terminate the contract in order to avoid the proposed amendment to the general terms and conditions and thus the imposition of account management fees. In fact, the contract must remain valid under the existing terms and conditions if the client objects to the proposed amendment. If the institution is not prepared to accept that, it has to terminate the contract itself; general terms and conditions cannot be amended unilaterally.

In some cases, BaFin found that, despite objections from their clients, credit institutions adjusted the contracts to the amended terms and conditions and charged fees for account services that had previously been free. BaFin made these institutions reimburse the fees they had collected unlawfully.

Consumer credit and payment protection insurance

Several submissions also related to general consumer loans with payment protection insurance.² Since this affected older borrowers – aged between 46 and 69 –, one-off premiums of up to five-digit amounts were being charged, thus accounting for between around a third and almost half of the amounts financed. Since the one-off premium is included in the loan, interest has to be paid on that as well, making the loan significantly more expensive. For this reason, customers subsequently wanted to withdraw from the payment protection insurance policy and asked for advice and support.

However, BaFin may only take action to protect collective consumer interests (section 4 (1a) of the German Act Establishing the Federal Financial Supervisory Authority (Gesetz über die Bundesanstalt für Finanzdienstleistungsaufsicht)). It is not allowed to advise or support individual consumers.

Before entering into a contract, consumers should check carefully what costs they will incur as a result of taking out payment protection insurance and whether such a policy is advisable and makes financial sense. As part of this process, they should above all consider the insurance premium in relation to the loan amount. Payment protection insurance is typically not a mandatory requirement for getting a loan. If consumers have already entered into such a contract, they should check whether they have a right of revocation that they may want to exercise.

Investment and asset management companies

As part of investment supervision, a total of 145 complaints and queries were received from consumers in 2017. They related to, among other things, amendments to fund rules and the requirement on asset management companies to provide information to investors.

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, the liquidity retained for contingent liabilities, the amount of sale proceeds for fund properties sold, or when to expect the repayment of the funds invested from an open-ended real estate fund for retail investors in liquidation.

The majority of submissions relating to closed-ended funds were about legacy funds managed by asset management companies supervised by BaFin. These legacy funds are, however, not subject to the requirements of the German Investment Code (Kapitalanlagegesetzbuch). Some of the complaints about closed-ended funds also involved company law issues, such as approval requirements.

BaFin investigated the reports and, where necessary, invited comments from the supervised undertakings. It also explained the legal framework to the complainants, for example by pointing out alternative ways of dispute resolution.³ There was, however, rarely any need to take further supervisory measures.

Insurance undertakings

Complaint figures

In 2017, BaFin completed the handling of 7,367 submissions (previous year: 7,985) relating to the insurance sector. 32.0 percent (previous year: 29.8 percent) of these submissions ended in success for the parties that made them.

7,212 submissions (previous year: 7,830) were attributable to all insurance classes mentioned in Table 2 "Submissions received by insurance class since 2013" put together. They break down into 6,738 complaints, 374 general enquiries and 100 petitions, which reached BaFin via the German Bundestag or the Federal Ministry of Finance (Bundesfinanzministerium). The slight decline in the total is mainly due to the fact that, unlike in the previous year, there was no recurrence of the special factor resulting from a large number of multiple entries in legal expenses insurance relating to the emissions scandal complex.

Table 2 Submissions received by insurance class since 2013

Submissions received by insurance class since 2013

BaFin

The reasons for complaints vary (see Table 3 "Most frequent reasons for complaints in 2017"). The most frequent reasons were:

Table 3 Most frequent reasons for complaints in 2017

Most frequent reasons for complaints in 2017

BaFin

Selected cases

Risk premium on change to different tariff

An individual with private health insurance wanted to switch to a cheaper tariff. The existing tariff was marketed in the 1990s in the federal states formed after Germany's reunification; its special terms and conditions made it particularly favourable. The insurer submitted a quotation to switch, with a risk premium of 300 percent, which it justified by claiming that the new tariff provided more benefits. The risk assessment for the requested tariff change was carried out using an IT assessment tool which disregarded the special terms and conditions of the original tariff. A subsequent manual assessment carried out by the insurer in the process of handling the complaint established that a risk premium of only 30 percent should have been levied. Prompted by BaFin, the insurer amended its working guidelines and submitted new quotations to all affected customers.

Tariff to be used when adjusting insurance cover for couples in the event of separation

The process of adjusting insurance cover following a couple's divorce gave the complainant rights under her husband's life insurance policy. She complained that after the split of the policy her new policy was to have a lower technical interest rate.

However, under section 11 of the German Pension Equalisation Act (Versorgungsausgleichsgesetz), the internal split has to ensure that both spouses have an equal share in the rights acquired during the marriage. Accordingly, the new policy must have the same technical interest rate as the original policy.

When this was queried by BaFin, the insurer said that it would adjust the technical interest rate. The undertaking is working on a solution that will automatically make the IT system use the same technical interest rate in future.

Securities business

A total 522 complaints (previous year: 493) and 272 written enquiries (previous year: 188) relating to securities transactions were received from investors in 2017.
Most of the complaints were about customer service (including securities account transfers), investment advice, order execution and client information.

Another focus in 2017 was again on complaints about companies domiciled in Cyprus offering cross-border services. Since BaFin does not supervise these undertakings, it informed the competent authority in the country of origin, the Cyprus Securities and Exchange Commission (CySEC), about the complaints. Although all of these undertakings offered financial contracts for difference (CFDs)⁴ or binary options, the complaints were hardly ever about the products themselves. Losses suffered by clients and the institutions' refusal to repay funds were the main reasons for the complaints, most of which go back to issues dating from 2016 or earlier.

In response to the large number of complaints from all over Europe about Cypriot undertakings, a working group involving CySEC was established at ESMA in 2015. Thanks to this working group and the measures taken by CySEC, the number of complaints declined to 30 in 2017 (previous year: 50).

In addition, a number of complaints were lodged by customers claiming that they had received information late, or not at all, about the possibility to trade subscription rights. For this reason, BaFin had a closer look at the process underlying the provision of this kind of information at the institution concerned and criticised some aspects. In consultation with BaFin, the institution is currently adjusting its process in order to provide customers with better information about the option to trade subscription rights in future.

Consumer helpline

Citizens can call BaFin's consumer helpline at +49 (0) 800 2 100 500⁵. They continued to make frequent use of this facility: in 2017, the advisers dealt with 19,367 (previous year: 20,088) queries about the financial market, specific issues relevant to consumer protection and problems with banks, insurance undertakings or financial services providers. Of these queries, 34 percent related to the insurance sector and 45 percent to the banking sector. 9 percent of calls concerned securities supervision.
Many callers requested information about the different ways of submitting complaints to BaFin. The helpline agents named the competent authorities and provided information on the status of ongoing complaint procedures. Many callers also asked about arbitration options.