Reversal of dangerous combined transactions: Revocation of credit-financed capital investments

– New ruling of the Federal Court of Justice facilitates the discharge of loan debts –

It is part of everyday life at credit institutions to make even larger capital investments possible for the customer by making a large part of the necessary money for an investment available to him as a loan. As a rule, these are private investments, so that banks and savings banks must comply with the rules on consumer protection. The credit institutions often make mistakes in this process, for example because forms have been designed incorrectly.


Raisin theory in practice

If capital investments develop unfavourably, investors are interested in parting with their investment later on in a way that is as “cost-neutral” as possible. With faulty contract contents and consumer instructions, one can separate also still after many years from its investment de facto retroactively. If the capital investment develops favourably, one will of course gladly continue to hold on to it (as a raisin, as it were).


Revocation instructions of the banks

Numerous EU regulations, transposed into national law, oblige financial institutions and distributors to inform consumers about their right of withdrawal. Typically, such rights of withdrawal come into question when a contract is concluded over the Internet, only on the telephone or at the door. This is to protect the consumer from being hastily persuaded to enter into a contract. In addition to these special situations when concluding a contract, there are also special types of contracts where the consumer should also be protected from being over-hasty, for example when it comes to a so-called consumer credit. However, many financial product distributors and credit institutions have a hard time with this, because the revocation instruction must meet mandatory standards.


No loan repayment when financing a closed-end fund participation

An investor sued its bank before the regional court Gera that the court may determine, it owed its bank for the loan for the financing of its fund participation no repayment. He was proved right. In addition, the credit institution was ordered to return the collateral provided by the investor (assignment of life insurance policies) and to reimburse the lawyer’s fees. The bank pursued the matter all the way to the Federal Supreme Court (BGH).


Power word of the BGH: Reversal !

In its ruling of 28.06.2011 (Ref. XI 349/10), the BGH found that the credit institution had failed several times in succession to correctly inform its own customers of their consumer rights. Therefore, the investor could revoke all contracts even years later.

In the case decided, the investor had had a freelance financial adviser visit him at home. A short time later, the “economic adviser” had then arranged the bank loan – so the loan agreement had (still) been “infected” by the doorstep situation. Both the linguistic ambiguities about the start of the revocation period and the lack of a “double notice” that both the loan and the fund participation can be revoked, and that the other contract is then no longer binding, were the bank’s undoing.


Potential billions for defrauded investors

Experts estimate that around two thirds of all closed-end fund investments do not develop as forecast in the prospectus or by the broker. Affected are for example real estate funds, film funds, wind power funds, silent partnerships and aircraft funds. In about half of all offers of this so-called “grey capital market”, the suspicion later arises that funds have been misappropriated, embezzled, misinvested or have become untraceable. If then the credit institute did not instruct correctly about the right of revocation, and if also a later attempt to save this situation fails, because the “Nachbelehrung” was likewise incorrect, capital investors have to pass good chances their plant losses on to the lender.


No statute of limitations

If individual advisory errors are time-barred, this does not always harm the position of borrowers or capital investors. This is because the statute of limitations starts anew for each consultation with faulty content. Usually, new obligations to provide information arise during consultations on the occasion of interest rate adjustments, contract extensions or adjustments of conditions, which can even make revocation possible.


If it is a bundle of contracts, e.g. a combination of an investment or a life insurance policy and a loan, in individual cases all contracts can still be revoked even many years later. In many cases, there is no time limit at all, so that in particular the consumer right to revoke a contract still exists for legal design.


by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm

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About the author

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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