Dispute over the credit in the case of payment by instalments

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The HUK-Coburg has accepted a cease-and-desist declaration in proceedings against the consumer center Federal Association and will in future in the case of Riester contracts with installment surcharges additionally the burden of indicate the annual percentage rate of charge. The consequences of the ruling are controversial.


The battle situation is clear: the consumer protectionists are quite populistically demanding repayments for millions of contracts on the grounds of misleading consumers. The insurance companies, on the other hand, do not consider themselves legally responsible.


The foreseeable consequence: the discussion about the transparency of the rate surcharges is likely to continue for years – also fuelled by further rulings. For years, most insurers have imposed rate surcharges on premiums paid during the year. Because the insurance cover starts immediately, the annual premium is due in advance.

However, most customers prefer to pay for their insurance in instalments, as this makes it easier to finance the provision from their current income. However, those who pay in installments must accept a deferral surcharge. Of course, everyone knows that repaying is more expensive than making a payment in one fell swoop. The surcharge is indicated by the insurance companies – this has also been the case for many years – as a percentage of the premium.

Which has been a thorn in the side of consumer advocates for years. They believe that the customer should know exactly how expensive the installment payment actually is. It is true that anyone can calculate that with an annual premium of, for example, 1,000 euros and a surcharge of five percent, the additional expense is 50 euros in absolute terms. But converted to the annual percentage rate of charge, if the customer pays his premium in two instalments, for example, i.e. half-yearly, this results in a value of 8.33 percent (see: This is what instalment surcharges really cost).

The reason is simple: the insurer only grants the deferral of payment for half of the sum, and only for half a year, because the customer pays 500 euros on 1 January and another 500 euros six months later.

In fact, he even pays the interest, that is, the surcharge. As an example, in 2004 the Federation of German Consumer Organisations accused HUK-Coburg of charging a non-transparent surcharge for Riester contracts because the effective annual interest rate was not stated. The regional court Bamberg (judgement of 8.2.2006 / Az.: 2 O 764/04) gave the Verbraucherschützern right, the higher regional court Bamberg (judgement of 24.01.2007 / Az.: 3 U 35/06) the HUK Coburg.

HUK-Coburg preempted what is likely to be a general injunction claim by the Federal Court of Justice against the industry by acknowledging the judgement of the first instance (acknowledgement judgement of the Federal Court of Justice of 29.7.2009 / Ref.: I ZR 22/07).

Now – strongly fueled by the consumer center Hamburg – a dispute has arisen about the consequences of this decision. According to its own statements, the Hamburg consumer protection meanwhile relies on four legal opinions, which show the following – possible – effect of the legal dispute: All private installment insurance contracts, which were concluded after January 1, 2002 and are without indication of an effective interest rate, can still be terminated and reversed years later due to missing revocation instruction.

Only insurance contracts with instalment payments, which lie below the Bagatellgrenze (§ 491 BGB) of 200 euro annual premium, are not concerned “at least the customers can reclaim some hundred or even thousand euro”, so the consumer center Hamburg.

And for years retroactively. According to Prof. Hans-Peter Schwintowski of the Humboldt University of Berlin, a limitation period should only start to run when the customer becomes aware of his claim.

In order to secure the claims of private customers, the Verbaucherzentrale has developed a sample letter. The standard for the reclaim is the legal interest rate according to § 246 BGB, which is four percent.


No obligation to indicate the effective interest rate

In fact, apart from HUK-Coburger, no other insurer currently has to state the effective annual interest rate for Riester contracts in the case of instalment payments.

For the industry as a whole, no company is legally obligated to make a repayment or is required to rescind a contract.

HUK-Coburg prevented a judgement on the merits of the case by acknowledging the decision of the Bamberg Regional Court. The German Insurance Association – led by former HUK-Coburg board member Rolf-Peter Hoenen – is currently referring to an explanation of the EU Consumer Credit Directive of 23 April 2008, according to which insurance contracts are expressly excluded from the concept of a credit contract. Although the Directive was transposed into national law in July 2009, there is no specific indication in the law as to whether the exemption applies or not.

The insurers also stress that there is no justification whatsoever for doubting the legality of the rate surcharges. After all, these surcharges had never been objected to in audits by the supervisory authority. Moreover, according to Nürnberger Versicherung, for example, ‘instalment surcharges would correspond to the additional administrative costs of payments received during the year’.

But the consumer protectors do not dispute “the economic necessity” or the “legality of the partial payment surcharges” at all, but criticize only, in their opinion – and that of the Bamberg Regional Court – incorrect cost information for surcharges. Division for division the Verbraucherschützer would like to sue now supreme court material decisions through.

The dispute cash for this fills itself the consumer center Hamburg with an info. package, which is dispatched for 17.50 euro. The proceedings are likely to drag on for years. And it remains questionable whether a repayment claim can actually be derived from a transparency violation. Even the Federal Association of Consumer Centres is sceptical here – in contrast to its Hamburg member. After all, it can be assumed that consumers who voluntarily choose an instalment contract are aware of higher costs.


First pioneers with effective interest

Nevertheless, the insurance companies are beginning to rethink. For example, the Ergo Group introduced the indication of the APR in all lines of business as early as 2008, with the exception of car insurance. Others are following suit. For example, since the beginning of 2010, the VHV Group has shown an effective interest rate in the terms and conditions for life insurance in the case of instalment surcharges.

In the other divisions, this is to be done before the end of the year. At the same time, VHV emphasizes, “This information is provided as a precautionary measure and, in our legal opinion, is not required.” But the dams have long since been broken – no matter how the legal discussion develops.

Familienfürsorge (HUK- oburg Group), Deutscher Ring, Volkswohlbund and Württembergische also already indicate the annual percentage rate of charge for instalment surcharges for all or some lines of business. Here, the competition for more transparency has long since begun. Other insurers, such as Debeka, can sit back and relax. “We have always concluded only annual contracts in the area of our property and casualty insurance and generally do not charge any installment surcharges,” says press spokesman Christian Arns.

All contributions are calculated as real monthly contributions and most insured persons pay their contributions via a monthly direct debit mandate. In the case of motor vehicle insurance alone, Debeka also charges a surcharge of three per cent for monthly payments. Other providers are significantly more expensive here with up to nine percent. In the area of life and pension insurance, Debeka even grants a discount of up to four percent for annual payments.

A regulation that the Bamberg Regional Court clearly welcomes. In contrast, rate surcharges in their current form as pure percentages will hardly have a future. In the near future, insurers are likely to enter the market with so-called true in-year premium payments.

Thus, according to the consumer association of Hamburg, there is no misleading as to the price because the monthly premiums are calculated higher from the outset. “Until then, intermediaries should point out very clearly in daily practice their private customers to rate surcharges and to the conversion to the effective interest rate, if this is not done by the insurer of its own accord,” says Carlos Reiss, managing director of the Frankfurt insurance brokers Hoesch & Partner. Openness is not the worst method of consultation, he said.

In addition, insurance brokers would have a considerably increased liability risk in view of the public discussion. The reference to the conversion of the surcharges should therefore not be missing in the private consultation protocol. Such a clearing-up obligation for mediators sees also attorney Johannes Fiala from Munich. “Those who mediate insurers who continue not to state the APR in the case of instalment surcharges and inform about the right of withdrawal should definitely inform their private customers about the ruling of the BGH.”
demands the lawyer.

by Uwe Schmidt-Kasparek

by courtesy of

www.performance-online.de (published in Performance, issue 03/2010, page 30-33)

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Dr. Johannes Fiala Dr. Johannes Fiala

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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