By Johannes Fiala*
With interest rates down, many property owners and business owners want to reschedule to get cheaper financing: Debt restructuring at no cost and no compensation, plus money back from the bank. This is also the dream of many an investor whose capital investments have for years failed to yield what was promised in full when they were sold. Legal errors in the loan agreements of the banks often make it possible to reduce the debit interest to a maximum of 4%. Commission-maximised financing: Horst Schmidler (name changed) financed several closed-end investment funds at his bank. The intermediary, intent on optimally high visions, not only arranged the investment, but also the financing. So that equal three times a commission results, naturally a fixed credit is recommended, and a further investment (building society contract or life insurance) for the later credit repayment mediated. The BGH punishes bankers for cross-selling: The Federal Court of Justice has ruled that even when combining a fixed loan on the one hand and an investment for repayment on the other (e.g. life insurance), the credit institution must state the total price. This means that it is not sufficient if the life insurance contract specifies a monthly instalment in DM or Euro. Rather, this cost component of the financing must also be reflected in the bank’s loan agreement. The credit institution must therefore add up the individual charges for the consumer from the life insurance premium and the bank loan interest instalment and disclose them as a total charge, Section 4 I 4 No. 1 b VerbrKrG. The rescheduling and recalculation of the loan: Horst Schmidler is pleased because when he took out a loan in 1995 he agreed just under 9% interest with his bank, today he would pay 4-5% if he took out a real loan on his property again to finance it. He asks his bank to recalculate his loan, and to apply a maximum of 4% interest retroactively since 1995 (BGH judgement of 18.12.2001): This means for the credit institution after eight years a repayment to Schmidler of about 40% related to the loan amount. No loan termination by the bank: Schmidler avails himself of the support of a financing expert (cf. e.g. the list of experts at www.fiala.de on the Internet), who had given him the hint of this interesting arrangement option for improving his credit rating. The lending institution terminates the loan after Schmidler stops making payments to the bank. Previously, he had asked for the recalculation and interest refund for months without success. The BGH (Gz. XI ZR 156/01) decided that the consumer as a credit customer of the bank is not in default in such a situation and therefore the bank cannot simply give notice of termination of a fixed loan.
Conclusion: With annual sales of closed-end funds in the double-digit billion range, considerable “hidden burdens” from the credit financing of such investments still await some bankers. However, real estate financing with repayment via an additional savings contract (e.g. life insurance, building society savings contract) is also affected. Not to be forgotten here would also be the cases of so-called “leverage transactions”, a combination of fixed loan, “instant annuity” and simultaneous life insurance contracts.
*The author is a lawyer in Munich (www.fiala.de), MBA (Financial Services, Univ. Wales), banker, certified financial and investment advisor (A.F.A., in the Lloyds Bank, plc. London group).
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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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