The European Court of Justice (ECJ) in Luxembourg issued a consumer-friendly ruling on September 09, 2021. This ruling empowers consumers to revoke almost any loan agreement due to insufficient mandatory information. The question of the revocability of loan agreements is thus currently being discussed anew.
Consumers can rejoice and save cash – in practical terms with regard to car loans. What legal options do consumers now have? – by Valentin Markus Schulte, economist and stud. iur. at the law firm Dr. Thomas Schulte in Berlin.
Case law of the ECJ
In its ruling, the ECJ stated that banks must comprehensively inform consumers of their rights when concluding credit agreements. The clauses previously used by German banks in their contracts are not compatible with European law and are therefore illegal. As a result, the revocation period is not or has not been set in motion and consumers can therefore exercise their right of revocation even after several years. In this respect, the ECJ differs significantly from the case law of the German Federal Court of Justice (BGH), which has often rejected consumer revocation on the grounds of abuse of rights or forfeiture.
Who is a consumer?
By analogy with the provisions of Section 13 of the German Civil Code (BGB), consumers are those natural persons who conclude legal transactions for purposes that cannot be attributed to their professional or commercial activity. Entrepreneurs, on the other hand, are thus either legal entities or natural persons who conclude legal transactions for purposes that can be attributed to their commercial activity, in analogy to the provisions of Section 14 of the German Civil Code (BGB). This classification is always dependent on the situation, i.e. the same natural person can be both a consumer and an entrepreneur in different situations.
Legal consequences and advantages for consumers
Consumer rights have been strengthened by this decision, because the ECJ has specified in its ruling some mandatory information that must be included in the credit agreement on the part of the banks. Conversely, this means for consumers that loan agreements that do not contain these mandatory disclosures can be revoked with immediate effect. These include: Precise information on the default interest rate, the comprehensible calculation of the early repayment penalty for the consumer, and sufficient information on the out-of-court complaint or redress procedure. If these details are incorrect or inadequate, in most cases the statutory revocation period has not been or will not be set in motion. Consumers are thus entitled to a right of withdrawal even years later.
Right of withdrawal for consumers in practice?
If consumers exercise this right of revocation, the contractual relationship is converted into a returnable debt relationship. What does this mean? In practice, this means that the consumer returns the financed car, for example, and the bank must refund all payments in return. For consumers, this results in an economically very advantageous way out of car financing in many cases. What should an affected borrower do now? Due to the ECJ decision, every consumer is advised to subject their own loan agreements to a thorough legal review.
Consumers, a family father from Goeppingen and a young woman from Hamburg, contacted the law firm Dr. Thomas Schulte on the day of the decision to commission a review of their loan agreements. Both concerning can revoke in all probability their contracts and get rid of unpleasant and expensive auto financings promptly favorably. Legal protection insurances finance the settlement without costs and risks.
Valentin Markus Schulte
Economist, Stud. Iur
Law Office Dr. Thomas Schulte
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