Supreme Court ruling: Debtors can revoke installment loans easier

The consumer advocates speak of a “new hope at exorbitant rates loans”. however, reacted banks to a judgment of the Federal Court (BGH), which has strengthened the position of the borrower.

The consumer advocates speak of a “new hope at exorbitant rates loans”. However, reacted banks on a judgment of the Federal High Court (BGH). Do not expect cancellation wave in installment loans, which have a volume of 140 billion euros in Germany. What is certain is that the Supreme Court has strengthened the position of the borrowers.

Who at the same time completing a payment protection insurance with a loan, is in the future a greater chance to get out again from both contracts. The results from a landmark judgment, the Federal Court of Justice against the Citibank felled. So far, this question had been judges of the lower court instances controversial.

The decisive factor is payment protection insurance

This judgment is preceded by years of dispute between consumer advocates and banks. The consumer advocate throwing the institutes’ credit usury “before because they coupled granting consumer loans to systematically balance insurance. These policies jumping one in the case of unemployment, disability or death and take over the payment of installments to the bank. Thus, the banks secure against default. Especially-prime borrowers such insurance should be the rule.

In the current dispute, a couple from Cologne had taken a consumer loan at the Institute. When the couple wanted to break prematurely from their obligations, they appealed to the fact that the bank, they did not inform sufficiently about their right of withdrawal. Citibank had in fact not noted that it was for credit and insurance to “related operations”. In such a case, individuals are no longer bound to both contracts – even if they have revoked only one of them.

The supreme civil court now ruled that the bank would have the spouses in this law must point. Because they had not done this in a pre-printed instruction, customers could withdraw even after the regular period of two weeks without any explanation of the entire business. However, the judges made their classification depending on the specific circumstances. In this case, Citibank had specifically referred to the insurer in the loan agreement as their “partner”; both contracts increased relative to each other, respectively. The recorded loan amount was increased by the cost of the premium.

In addition, the Bank Division of the Supreme Court indicated that the couple over this partial amount could not dispose of freely; He was rather paid directly to the insurance company. Finally, the effectiveness of the loan agreement was explicitly dependent on the conclusion of the insurance. Thus, both agreements were seen from the judge an “economic unit” (Ref .: XI ZR 45/09).

Economic unit between credit and insurance

For the provision of payment protection insurance, banks collect and commissions by insurers. In the business with installment loans institutions such as Citibank, Santander or team bench are leaders. With payment protection insurance, the insurer Cardiff, Cigna, Swiss Life and Delta Lloyd have high market shares. So far the criticism of consumer protection is inconclusive fizzles. Even the Supreme Court ruling does not increase the chances of enforcing the required of them including the cost of insurance in the effective interest rate. This provides even the new Consumer Credit Act, which comes into force in June of 2010. Arno Gottschalk from the consumer center Bremen criticized the lack of transparency in the cost of payment protection insurance. The contribution for this is to avoid paying month after month but comes with a single premium, which will co-financed through an increase of the loan. This has, according to Gottschalk often the effective cost of borrowing of 20, 30 percent or even more consequence.

He demands that banks offer customers the loans with or without insurance, disclose the commission and shall show the monthly payment under the policy. However, the banks are hard to prove systematic coupling shops. Thus arose from an investigation by the Financial in spring 2007 no clues. The trade association representing 57 consumer finance and automotive banks, countered with a given by him at the GfK market research institute commissioned study. Thus, only 27 percent of the rates borrowers have taken out payment protection insurance. Two-thirds of customers considered this to be useful.