However, the practical implementation of this complex statutory provision is still causing problems in some areas. This can be seen from consumers’ submissions to BaFin on the subject. The following explanations are aimed at providing more clarity.

At a glance: Garnishment protection account

A garnishment protection account (Pfändungsschutzkonto – P account) is not a specific type of account. It is rather a normal current account that is managed as a P account based on a specific arrangement between the bank and the customer. This means that bank customers affected by garnishment measures can access the non-garnishable portion of their income in an unbureaucratic manner. The basic garnishment-free allowance is currently €1,045.04, and can be higher under certain conditions.

Background and legal basis

A large majority of the private payments made today do not involve cash and are based on consumers’ current accounts. This is where for example wages, salaries and social benefits are paid in, and credit transfers, direct debits and card payments are processed. If for whatever reason an individual does not have access to such an account, they are unable to make and receive non-cash payment transactions and are thus prevented from taking part in economic life.

It was previously the case that an account garnishment led to the account being completely blocked, meaning it was impossible to make regular payments using it. The Act on Account Garnishment Protection Reform, which entered into force on 1 July 2010, was designed to prevent debtors being excluded from making and receiving non-cash payment transactions. It introduced the option of converting an existing account into a P account. This statutory right was established in section 850k (7) of the Code of Civil Procedure (Zivilprozessordnung - ZPO), which stipulates that all natural persons can request that their bank convert an existing account into a P account.

Reasons for complaints

Since P accounts were introduced, the annual number of complaints from consumers about them has remained roughly the same: approximately 100 consumers contacted BaFin in each of the first two years following their introduction on 1 July 2010. The number declined slightly to 93 in the following year. In the fourth year following their introduction, which ended on 30 June 2014, BaFin received a total of 116 submissions on the subject.

That said, the specific issues have changed: while consumer queries immediately following the introduction of P accounts chiefly concerned how to set them up, today consumer submissions frequently relate to the permissible level of fees for or specific problems with account management.

Setting up a P account

In the first year after P accounts were introduced, a large number of consumers complained that their bank had refused to set up a P account. They requested that BaFin use its influence with the banks to require them to open the account, since consumers had a statutory right to it.

In such cases BaFin had to clarify two popular misconceptions. Firstly, it is impossible for BaFin to make specific demands of supervised institutions and companies relating to a particular contractual relationship, i.e. in this case to open an account for a specific customer. Secondly, bank customers only have a statutory right for an existing current account to be converted into a P account. The customer must therefore already hold an account with the bank concerned.

There is no statutory right to open a current account. The recommendation made by the Central Credit Committee (Zentraler Kreditausschuss – ZKA) of a “current account for everyone” (only available in German) is only a recommendation. If a consumer does not currently hold an account with a bank and wishes to set up a P account, the bank is free to refuse the consumer’s request as matter of principle.

Range of services

Even in cases in which a normal current account was converted into a P account, consumers were repeatedly faced with unexpected problems over the last few years, as some banks reduced the range of account services provided. For example, customers found themselves without access to online banking, losing their overdraft facilities, or having to hand back their EC cards or debit cards, meaning that they were no longer able to make withdrawals from cash machines. This was particularly true for customers of direct banks that lack their own branch network, and for customers in less developed regions with poorer access to bank branches.

However, a P account is a conventional current account that is managed as a garnishment protection account (P account) based on a supplementary arrangement to the current account agreement between the bank and the customer. In principle, the arrangements in place before the account was converted therefore continue to apply. However, the Act does not stipulate the account services that banks have to offer under a P account. This means that, after conversion, the banks can in principle terminate services that are dependent on a customer’s credit quality, for example they can cancel EC cards or debit cards, or withdraw an overdraft facility. However, it is not possible to automatically cancel or terminate services that are dependent on a customer’s credit quality when an account is converted, since in the opinion of the Federal Court of Justice (Bundesgerichtshof – BGH) this type of automatic termination without any notice of termination puts the customer at an unreasonable disadvantage (judgement dated 16 July 2013, case ref. Az. XI ZR 260/12, only available in German).

Account management charges

As in the past, many consumers are also critical of the fees that some banks charge to manage P accounts. Customers had to pay up to €15 immediately after conversion to a P account. Since they have limited funds at their disposal, this is a considerable expense.

The Act does not expressly stipulate the maximum management fee for a P account. However, in its recommendation for a resolution on the bill (only available in German), the Bundestag’s Committee on Legal Affairs pointed out that the charge must not exceed “what is customary for a general account into which a salary is paid”. In addition, in two decisions dated 13 November 2012, the BGH made it clear that clauses introduced by banks that stipulate a higher fee for managing a P account than for managing a normal current account are invalid (case ref. XI ZR 500/11 and XI ZR 145/12, only available in German).

Following a complaint, BaFin had already advised one bank of the recommendation for a resolution concerning the charges before the BGH’s decisions were announced. In addition to its general account management fee, the cooperative bank concerned was charging a further fee to manage P accounts. The bank discontinued this practice after BaFin’s intervention. None of the complaints currently pending with BaFin indicate that other banks are charging impermissibly high fees.

Garnishment protection accounts during bankruptcy

The opening of personal bankruptcy proceedings also had undesired consequences for many garnishment protection account holders: they complained to BaFin that, as a result, the banks regarded the account agreement as having been terminated. The background to this are the provisions of the Insolvency Code (Insolvenzordnung – InsO). In accordance with section 115 and 116 of the InsO, continuing obligations (which include current account agreements) are automatically terminated in the case of statutory insolvency arrangements.

As yet there is no statutory provision governing, or highest-level ruling on, whether this also applies to a P account. To date only lower-level courts have dealt with this issue. In a decision on savings bank accounts dated 19 September 2013 (case ref. 4 S 3/13), the Landgericht (Regional Court) in Verden took the view that opening bankruptcy proceedings does not lead to termination of the account relationship. Any decision to the contrary would counteract the legislative intention to enable the debtor to make and receive non-cash payment transactions, even if in financial difficulty, by establishing a garnishment protection account.

Problems at the beginning of the month

Immediately following the introduction of the P account, many bank customers were faced with a further problem that led to complaints received by BaFin: payments, for social benefits in particular, are frequently made to an account at the end of a month for the following month. This meant that the customer’s garnishment-free allowance was already exhausted in some cases, so that payments became due to creditors. As a result, the amount transferred was no longer available in the month for which it was actually intended.

Lawmakers solved this problem by introducing section 835 (4) of the ZPO and amending section 850k of the ZPO, effective 16 April 2011. In accordance with these provisions, the banks as third-party debtors are only permitted to make payments to creditors or deposit amounts with the responsible authorities or funds after the end of the calendar month following the month in which the payment was credited.

However, these new rules gave many customers the impression that a certain basic amount could remain in the garnishment protection account without being garnished. Some consumers complained to BaFin that their bank transferred this credit balance to creditors holding the garnishment. BaFin cannot help in such cases: if funds remain in the account, they are subject to the garnishment at the latest two months after they are credited. The corresponding procedure that banks automatically follow seems unclear to some customers, in particular in cases in which payments to the account are always below the garnishment-free allowance threshold. However, the garnishment protection account is not designed as a savings account.

Account servicing and garnishment-free allowances

Aside from the basic garnishment-free allowance, which currently amounts to €1,045.04 per month, customers with P accounts can apply to a court or other authority for additional garnishment-free allowances, namely for child benefit, supplementary child allowances and certain other social benefits, as well as other specific costs, for example those relating to long-term illness.

However, additional garnishment-free allowances and potential credit balances brought forward from the preceding month mean that payment transactions made via a garnishment protection account cannot be fully automated. The banks must manually determine the credit balance actually available. In addition, the credit balance at the customer’s disposal is frequently not apparent from the account balance, which repeatedly leads to uncertainty. For the most part BaFin cannot help here, since the banks’ organisational effort in ensuring the proper management of garnishment protection accounts is significantly higher than for current accounts without garnishment agreements. Consequently, they are permitted in the case of garnishment protection accounts to deviate from the statutory funds transfer times.

Outlook

When the P accounts were introduced, lawmakers announced that they would review whether the intended objectives had been achieved three years after the Act entered into force. The Federal Ministry for Justice and Consumer Protection (Bundesministerium der Justiz und für Verbraucherschutz) is currently collecting data for this purpose.

Consumer protection bodies consider one weakness of the Act to be that, as mentioned previously, it still doesn’t found a right to a current account. However, lawmakers now intend to rectify this shortcoming: the Federal Government’s action plan on consumer protection in the financial market of May 2014 provides for the introduction of a subjective right into the law, i.e. an individual right of access to a payment account.

In addition to this, the European Payment Accounts Directive was adopted on 23 July 2014. The directive gives all persons legally resident in the European Union the legal right to a payment account with basic features. This basic account should provide certain banking services and the fees for its management should be reasonable. In addition, the directive provides for comparison websites to be established to make it simpler to compare payment account fees, and contains provisions aimed at making it easier to switch accounts. Member states have two years to implement the directive into national law.