Things are likely to move forward shortly in the lively debate surrounding invalid interest rate adjustment clauses. BaFin is also plugged into the latest developments and is concentrating in particular on the interests of consumers affected by these clauses. In addition to this, the supervisory authority is exchanging ideas and information with institutions and associations.

Background

From the 1990s until the early 2000s, many banks and savings banks offered their customers premium-aided savings plans (“Prämiensparpläne”) with variable interest rates. A premium-aided savings agreement (“Prämiensparvertrag”) is a long-term savings plan that combines a fixed savings component with variable interest payments. In the context of such agreements, the institution agrees to pay the customer a premium on top of the interest earned. The premium increases gradually according to a scale over the duration of the agreement; this premium can amount to as much as 50 or even 100 per cent of the contractual savings amount paid.

In practice, these contracts displayed strong similarities across the industry. The general terms and conditions of many institutions included interest rate adjustment clauses which granted the institutions unlimited unilateral discretionary powers to decide on changes in the contractual interest payment. However, the Federal Court of Justice (Bundesgerichtshof – BGH) has declared, in a number of judgments passed since 2004, that these clauses are invalid on the grounds that they are insufficiently clear. Savers might therefore find themselves unable to calculate potential changes in interest rates or check any changes that have been made (see info box “When are interest rate adjustment clauses unlawful?“).

Based on these court rulings, BaFin considers that the institutions concerned should approach their customers of their own accord – if they have not done so already – and inform them that the clauses used until now are not valid. The aim should be to find appropriate solutions that comply with the principles already defined by the Federal Court of Justice. However, in BaFin’s view, any institution that ignores the court rulings and deliberately continues to apply the invalid clauses without comment is deemed to have committed a statutory violation (section 4 (1a) sentence 3 of the German Act Establishing the Federal Financial Supervisory Authority (Finanzdienstleistungsaufsichtsgesetz – FinDAG) and can therefore in such a case intervene.

Declaration of invalidity only a first step

What happens if an interest rate adjustment clause is established to be invalid? Will the customer’s credit balance automatically carry higher interest rates? The answer is no, as the invalid interest rate adjustment clause ceases to apply altogether, leaving a gap in the contract. To close this gap, the parties must agree on a new interest rate. Only if no agreement is reached will the gap have to be closed by a court by way of a supplementary interpretation of the contract. To do this, the court must ascertain the true intention of the parties (section 133 of the German Civil Code (Bürgerliches Gesetzbuch – BGB)) and interpret the contract “as required by good faith, taking customary practice into consideration” (section 157 of the BGB). In other words, the courts must establish what the contracting parties would have agreed if they had known that the interest rate adjustment clause was invalid.

New interest rate agreements apply retroactively – this means that it is also necessary to recalculate the interest rates for the past in accordance with the new clause.

Requirements set out by the civil courts

In its judgments, the Federal Court of Justice has set out general requirements for the drafting of interest rate adjustment clauses. More concrete requirements in this regard are expected in particular in the two model declaratory actions (Musterfeststellungsklagen) filed by the Consumer Centre of Saxony (Verbraucherzentrale Sachsen), both of which have been referred to the Higher Regional Court of Dresden (Oberlandesgericht Dresden) (file numbers: 5 MK 1/19 and 5 MK 2/19). The lawsuits are concerned with establishing the criteria that banks should apply in order to calculate interest rates from premium-aided savings plans in compliance with the law. The expectation is that, in the course of these lawsuits, the court will resolve issues that are still in need of clarification.

Invalid clauses do not automatically lead to higher interest rates

The fact that interest rate clauses have been declared invalid does not automatically mean that customers will receive higher interest rates. In a first step, consumers should therefore check their contracts to establish whether they contain any invalid clauses and, if they do, they should negotiate replacement clauses with their bank. In case of doubt, they can turn to consumer protection organisations or seek legal counsel. Another possibility is to submit a complaint to BaFin. BaFin can use the complaints as a basis for assessing the overall situation. While unable to help consumers assert their interpretation of the contracts in an individual case, as this is exclusively a matter for the competent courts, BaFin will nonetheless ensure that violations of consumer protection law, if established, are resolved as mentioned above.