Background
Negative interest rates are currently the focus of intense discussion in the banking sector. Coverage of this topic in legal literature and case law has recently been the subject of scrutiny by lenders, borrowers and depositors alike.
Impact on loans
Banks and borrowers agree on a variable interest rate using an interest escalation clause that links the interest rate to a reference interest rate. If the reference interest rate is correspondingly low – due to the current low-interest phase – this can result in an arithmetically negative interest rate for the loan. As a result, borrowers are increasingly asserting claims for payment of negative interest from lending banks.
Direction from the German Civil Code
Pursuant to Section 488 paragraph 1 sentence 2 German Civil Code, the borrower is obliged to pay interest. Interest is the remuneration for the transfer of capital, measured according to the term, and independent of profit and turnover. Accordingly, the statutory model for interest does not provide for a claim for payment of negative interest. The interest due to an interest escalation clause can therefore at most drop to zero, but cannot lead to an obligation of the lender to pay the borrower remuneration for the provision of capital.
Direction from the courts
A court will take into account the commercial background to the disputed agreements. As far as older agreements are concerned, it can be assumed that the parties did not take negative interest rates into account at all. Further, interest rate floors were very unusual at that time. Accordingly, the absence of a floor does not lead to the conclusion that the lender has an obligation to pay interest in the event that the application of the interest escalation clause results in a negative interest rate.
Several regional courts (see for example, Regional Court Hamburg, judgment of 4 December 2020 – 318 O 367/19, Civil Chamber 2b of Regional Court Düsseldorf, judgment of 24 June 2020 – 2b O 254/18, Regional Court Stuttgart, judgment of 20 October 2021 – 14 O 770/20) and also a higher regional court (Higher Regional Court Düsseldorf, judgment of 28 October 2021 – I-5 U 29/21) have therefore already dismissed claims against banks for payment of negative interest flowing from Schuldschein loan agreements.
Despite these factors, the Higher Regional Court Hamburg, judgment of 11 May 2022 – 13 U 2/21) and the 13th Civil Chamber of the Regional Court Düsseldorf (judgment of 11 March 2020 – 13 O 322/18) each upheld a borrower's claim against a lending bank. According to the courts, fluctuating interest rates in variable interest rate clauses affect both contracting parties, whether interest rates are positive or negative, and, pursuant to supplementary interpretation of the agreements, a payment obligation of the lender in the amount of the negative value corresponds to the hypothetical intention of the parties.
Impact on deposit-taking
In the meantime, things are turning out badly for customers of deposit-taking banks. Firstly, they are failing to earn any meaningful interest on their deposits. Secondly, almost 600 banks and savings banks in Germany have been charging their depositors a negative interest rate, also known as a penalty interest or custody fee, on higher amounts in private current accounts and call money accounts. In most cases, the negative interest rate is 0.5%. That is the same as the interest rate the European Central Bank has charged commercial banks for short-term deposits.
The courts' views
According to previous rulings (see, for example, Regional Court Leipzig, judgment of 8 July 2021 – 05 O 640/20, Regional Court Tübingen, judgment of 26 January 2018 – 4 O 187/17 – and judgment of 25 May 2018 – 4 O 225/17) for the admissibility of negative interest a distinction must be made between new and existing customers. In the case of new mandates, individual agreements on negative interest are permissible, provided this is sufficiently clear in the agreement. In the case of old mandates, a subsequent amendment to the price display alone is not sufficient. In addition, according to case law, the charging of negative interest is not permitted if an account management fee has already been agreed. Further, according to recent rulings by the Regional Court Düsseldorf and the Regional Court Berlin, a credit institution may not charge an additional fee for the safekeeping of deposits in addition to account management fees for current accounts (Regional Court Düsseldorf, judgment of 23 December 2021 – 12 O 34/21), and the charging of a safekeeping fee for payment service contracts is not compatible with the fundamental ideas of the statutory provisions (Regional Court Berlin, judgment of 28 October 2021 – 16 O 43/21).
BaFin's views
The Federal Financial Supervisory Authority (BaFin) has also considered this issue resulting in it prohibiting online brokers from charging negative interest rates on demand deposits and balances for existing customers. BaFin also determined that custody fees for existing customers were unenforceable if these fees were introduced through the bank's general terms and conditions.
However, an action for annulment which was brought against the prohibition order was successful (Administrative Court Frankfurt a. M., judgement of 24 June 2021 – 7 K 2237/20.F) as, in the opinion of the court, BaFin had not sufficiently addressed the issue of whether it had the authority to issue a prohibition order, given that prohibition orders are only permissible if a general clarification is required by the supervisory authority. Where a decision of a higher or supreme court on the relevant legal issue is expected in the foreseeable future, the requirement is not met.
However, despite the annulment, BaFin's position on custody fees has been made abundantly clear.
Context
The courts' and BaFin's decisions must be seen in the context of the Federal Court of Justice's ruling on the amendment of general terms and conditions by means of fictitious consent (ruling of 27 April 2021 – XI ZR 26/20, see Lending Focus, September 2021). In this judgment, the Federal Court of Justice ruled that banks may not unilaterally and without restriction amend the main contractual obligations of bank customers by means of a deemed consent of the customers.
Outlook
In the light of the abundance of court proceedings on negative interest rates, we can expect that the Federal Court of Justice will also rule on negative interest rates in the lending and deposit business in the near future.
