– How capital investors can be deceived systematically also by “money back! order” –
Current BGH ruling on the invalidity of “money-back orders
The Federal Court of Justice (BGH. Judgment of 11.12.2013, Ref. IV ZR 46/13) ruled that the purchase of “used” life insurance policies is null and void unless it is a genuine purchase of receivables. This would require, for example, that the claim against the life insurer be definitively transferred to a purchaser and that the purchaser “assume the full economic risk of recovery of the claim”. However, it is harmless if, in the event of unexpected death, the additional profit thus accruing to the purchaser is paid out to the original beneficiary.
So-called investor emergency services in the liability trap?
In recent years, independent financial service providers, including those without a special license as brokers of financial products or insurance policies, have brokered the exit from closed-end investments such as life insurance funds, as well as endowment and unit-linked life insurance policies on a massive scale.
First investors pay for it up to less than 100 euro “notice fee”, later still another cost sharing over perhaps 300 euro, and receive then after receipt of money from the “investor emergency call” collection company apart from the surrender value up to less than half of the further proceeds – with remainder demands from already terminated and bought back life insurance up to less than a quarter of the proceeds.
“My money is not lost!”
In fact, in many models, after which the collection agency promises “We’ll get your money back from your investment and life insurance,” the money really isn’t lost. This is because the BGH found a violation of the Legal Services Act (RDG), according to which all debt collection orders with powers of attorney are then double null and void. Such a business model is not legalized also by the fact that a renowned Anlegerschutzkanzlei is switched on sometimes by stack power of attorney of the capital investor. This is because if the collection agency lacks the appropriate permit, it cannot remedy this deficiency by using a lawyer as a subcontractor. The mere assumption of costs for the relationship of a lawyer does not give the collection agency permission to engage in collection activities or, for example, debt settlement (BGH, judgement of 29.07.2009, ref. I ZR 166/06).
We claim your money back – together we are strong?
It could get tricky for a certifier if he allows his expertise to be advertised, for example with the words “Our procedures are TÜV tested”. The investor protection lawyer will also have to ask himself whether a recovery of void legal claims – of the collection agency without a licence – will also have an effect on the power of attorney granted to him. In addition, the life insurance customer or investor will ask himself whether it is sufficient if only “revocation declaration, notice of assignment and contestation” run off the assembly line instead of having the case processing carried out individually and comprehensively in the individual case.
Advertising with sample proceedings or statute of limitations trap?
In many cases, legal counsel or debt collectors have advertised “model procedures.” With some regularity, some proceedings were then pursued in the context of a “community of interests, investors or claims”, while the mass of investors had waited in their own case and the statute of limitations had run. In many cases, the necessary legal protection for the sponsors of test cases did not exist. Moreover, intermediaries of illegal debt collection contracts are not entitled to commissions. Insofar as legal claims on the part of investors in closed investments or policyholders have become time-barred as a result of void collection transactions, the parties involved are liable for recourse.
The life insurer is also liable
Liability can also affect the life insurer who should have realised that the power of attorney to terminate and pay out the surrender value was void. Under certain circumstances, he may continue to be obligated under the unterminated contract, but can only demand the premiums that were no longer paid after the ultimately ineffective termination up to the limitation limit. The situation is similar with the frequently used comprehensive brokers’ powers of attorney, which also allow the latter to provide a prohibited legal service and are thus – recognisable to the insurer on close inspection – null and void. Thus, the life insurer may still have to provide the benefit from a contract – therefore ineffectively – terminated by the broker years later, but without receiving the already time-barred premium claims in return. Conversely, insurance policies concluded by the broker by means of a (ultimately null and void) power of attorney are also null and void and must be rescinded by the insurer.
Optimized legal process financing
The first economic step in the reversal of closed investments and life insurance policies is the determination of damages – often a task for financial or actuarial experts and corresponding experts.
The legal starting point for a reversal is not merely “rescission, revocation and termination”, but the principles of the case law on the obligations of brokering or advising on capital investments. Often it depends on the individual advisory discussions with the investors, as well as the used folders and sample computations, if one to the personal savings goal and the individual load-carrying capacity with losses unsuitable investment were mediated.
Void “money back!” order.
A purchaser of claims of injured investors deceives his customers if he promises to finance a lawsuit, but does not finance the lawyer to be selected and commissioned by the customer, but operates himself in his own name as a debt collection company without a license. Accordingly, only the genuine purchase of receivables would be exempt from approval, without the credit risk remaining with the investor and without the associated profit participation.
Repeated disappointment of investors?
The BGH clarified that the RDG cannot be circumvented by relocating the branch of a commercial debt collection company to the more liberal Switzerland. Another crucial design flaw in such mass collection models is that there was no provision for an effective choice of foreign law from the outset. In the case decided by the BGH, the invalidity of the collection agreement had apparently not been remedied in good time, which is now falling at the feet of the collection companies and their legal advisors. The purchase of used life insurance policies has declined massively in recent years, not least due to the financial market crisis and the decline in value. Some debt collection companies do not have appropriate legal counsel on staff to obtain a collection license.
Tax savings model through abuse of design?
It is probably no coincidence that life insurance collection companies like to relocate their company to Switzerland, because the capital gains tax or final withholding tax withheld by life insurers can regularly only be refunded by “foreigners” to the tax authorities on application. Sellers of second-hand closed-end participations and second-hand life insurance policies will perhaps ask themselves afterwards why they have not participated in a possible tax advantage so far? However, further trouble may threaten not only collection companies as de facto asset managers and tax debtors of their clients, for example due to abuse of the tax structure, but also those sellers of life insurance policies and closed participations who wrongly considered the purchase price to be tax-exempt and therefore did not even burden their own tax office at the place of residence with the details of the facts. A void contract with the collection agency can then be fiscally beneficial in this regard.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
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About the author
PhD, MBA, MM
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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