Get your annual profits back from the bank:
Because the more than 3% interest rate reduction by the ECB since 2000 must be passed on to you by the credit institution!
It all started quite simply for investor Heinrich Müller (name changed): His banker granted him credit and arranged an interesting project as an investment years ago. But then the payment flows got out of control. The income dropped, the interest on the loan remained the same. What surprised investor Müller, however, was that the European Central Bank had lowered the base interest rate from 4.26% in 2000 to 1.22% today. Müller, however, did not feel anything of the interest rate reduction on the capital markets. Disinformation of the bank: The bank rejected inquiries only, there would be no requirement on it. On the occasion of the discussion of the annual account the topic comes up again, because in view of the sunk incomes the investment does not compute itself any longer. The advisor calculates: “You have invested 15 million with an 8% return, which results in 120,000, and you are paying 6% effective interest, which results in 90,000:
30,000 in profits back then? There is no sign of that today, as revenues have fallen by about 2%, but borrowing rates have not. Investor Müller is outraged “If the bank had passed on the interest rate cuts to me in the last few years, would I have fully absorbed the drop in income on average? the bank has effectively taken away my profit, today I only exchange money”.
Many investors and entrepreneurs feel the same way as Müller: The economic damage is enormous, the high unemployment figures and the insolvencies that have been rising for years speak volumes. If the banking industry does not properly pass on the interest rate cuts, the recovery may not happen. The legal claim to interest rate reductions: The bank customer often has a claim to the passing on of interest rate reductions in accordance with the development on the capital market: This corresponds to numerous, also higher court judgements, which have been issued on a legal basis over the last 15 years. (cf. judgements OLG Celle of 24.10.1990, 3 U 240/89, BGH of 06.03.1986, III ZR 195/84). Reservation of interest:
Both decisions deal with the interest rate of loans with variable interest rates, for example with the bank clause in the loan agreement ‘The bank is entitled to change the interest rate if it deems this necessary (…)’. The lawyer calls this an ‘interest reservation’, i.e. a discretion of the bank as the sole authority to determine the amount of the consideration for the loan of money or capital.
However, this right is not without limits: Because § 315 BGB forces the credit institution to adhere to certain rules ? in particular to pass on the reduction in refinancing possibilities to the customer under certain circumstances (cf. BGH WM 1986, 580 f.).
Timing and reason for passing on an interest rate reduction:
Case law here requires interest rate adjustments to be passed on within one or a few months of a change in the refinancing options. The case-law cites a change in capital market rates in the relevant market segment of 0,2 % as the reason for the obligation to pass on a reduction or increase in refinancing rates. Situation with a loan with a fixed term and a shorter fixed interest rate: Often loan agreements have a longer term (e.g. 5, 10, 15 years), but only a fixed interest rate (commitment to a fixed interest rate) for a shorter period. The customer of the credit institution is then surprisingly confronted with much higher interest rates (compared to the market conditions) by the bank when the fixed-interest period expires.
In such a case, the borrower can change the bank if there is no agreement on the amount of interest. Case law therefore grants the customer the right to change banks when the fixed-interest period expires (BGH ruling 6.4.1989). A clause according to which the customer has only two weeks for a debt rescheduling to another bank or savings bank (since notification of the new conditions) would also be ineffective: Hardly a customer then the preparation and settlement in such a case at such short notice into action (BGH judgment 06.04.1989). A statutory notice period of three months is customary here, so that the borrower has sufficient time to look for another credit institution.
Investor Müller has become suspicious: He now has his loan documents and the bank’s statements of account looked through by an expert: And lo and behold, the bank has a “special interest calculation clause” for him? which gives it even higher interest rates, without this being reflected in the indication of the so-called ‘initial annual percentage rate of charge’. The credit institution uses ‘for the calculation of the interest, the capital status at the beginning of the redemption year’.
Such clauses are also invalid because the effect of the increase in interest is not sufficiently clear to the average customer (cf. BGH judgment of 30.04.1991). Investor Müller rejoices, because this would make his loan even cheaper – indignantly, he asks his bank to recalculate the loan. The customer of the credit institution is not required to first file a claim (e.g. for recalculation of the credit account):
Rather, he can immediately sue for repayment of the unjust enrichment (§ 812 I 1 BGB) (see AG Bonn judgment of 10.07.1997). Basel II: Occasionally, the credit industry argues that the creditworthiness of the customer has changed and that it is therefore justified to increase interest rates at the expense of the borrower. However, this appears to be legally erroneous, because an adjustment of the interest in the case of variable interest in accordance with an interest reservation (fixed loan period with variable interest) is only permitted for the credit institution if the cause is a “change in the refinancing conditions for the bank due to capital market conditions” (cf. BGH judgement of 06.03.1986). However, the Bank may terminate the loan in the event of a significant deterioration in creditworthiness. A further “compensation” in favour of the bank, e.g. via increased “credit fees” would be ineffective (cf. LG Cologne judgment of 5.3.1986).
Burden of Proof:
The bank shall bear the burden of proof that the interest rates used as a basis for the settlement with the customer are equitable (cf. Traunstein Regional Court judgment of 10 November 1994, BGH judgment of 6 March 1986, BGHZ 97, 212). Disclosure of internal bank calculation: In many cases, credit institutions argue that they are not obliged to disclose the bank’s internal calculation when (possibly premature) redeeming a loan: The credit institutes withdraw thereby consciously from the judicial control and leave it to the judge in the way of an estimate (§ 287 ZPO), also under intercalation of an expert, to come to an appropriate result: However, the position of the borrower has been considerably improved in this respect by a decision of the Federal Constitutional Court (1 BvR 2203/98 of 28.12.1999):
There it is expressed that a company in the financial services industry cannot escape judicial control by citing a trade secret and refusing to allow the judge to inspect internal calculation documents. Prosperity boost for the investor: Heinrich Müller plans to reinvest the money as soon as he gets it back from his bank. In due course he wants to change his bank account, because he feels he is being led around by the nose by his bank adviser. The trust in honesty is gone: He does not let himself be robbed of several years’ profits by his bank so that the bank can restructure itself at his expense.
by RA Dr. Johannes Fiala
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About the author
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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