Berlin Court of Appeal’s judgment: Cease-and-desist-order due to incorrect declaration of APR on consumer-credit platform

The Berlin Court of Appeal (Kammergericht) has issued a cease-and-desist order against the provider of a consumer-credit platform regarding wrong information on the price of consumer-loans. The platform wrongfully excluded the cost of a seemingly optional, but factually mandatory solvency certificate from the credit’s annual percentage rate of charge (APR).

Background of the law-suit

The defendant provides an internet-platform for short-term consumer-loans granted by a partner bank. The Court of Appeal came to the conclusion that the platform’s offer is mainly addressed to consumers with low creditworthiness.

The platform offers potential borrowers the additional service of issuing a certificate stating the consumer’s creditworthiness to the partner bank. This certificate puts a stronger focus on the short-term nature of the loan and therefore differs from usual credit-reports issued by the German credit investigation company “Schufa”, which are a standard prerequisite for German consumer-loans. This way, the defendant’s service is helpful for such consumers whose loan application would be rejected due to a negative credit-scoring in their Schufa-report.

The consumers only have to pay for the solvency certificate if they are granted a loan by the defendant’s partner-bank. The acquisition of the certificate is therefore an optional service left to the consumer’s discretion; this is also how the service is promoted on the defendant’s website. The Court of Appeal assumed, however, that applications for loans are usually declined if consumers with low creditworthiness do not obtain a solvency certificate provided by the defendant. Since the defendant’s platform is mainly aimed at consumers with low creditworthiness the Court of Appeal held that most consumers are factually forced to obtain a solvency certificate if they want to be granted a loan via the defendant’s platform.

The Court’s Reasoning

In its judgment of 27 September 2019 (file number: 5 U 128/18) the Court of Appeal ruled that the cost of the solvency certificate provided by the defendant has to be included in the credit’s annual percentage rate of charge (APR). This way the court followed the line of argumentation by the claimant, a German consumer protection association (Bundesverband der Verbraucherzentralen).

The reason for this decision is based on the German Price Indication Ordinance (Preisangabenverordnung, PAngV) which transposes parts of the Directive 2008/48/EC (“Consumer Credit Directive”) into national law. Pursuant to Section 6 (3) PAngV a provider of consumer loans has to declare the credit’s APR. This has to cover all of the loan’s costs, including interest, commissions and any other kind of fees which the consumer is required to pay in connection with the credit agreement and which are known to the creditor.

Although the defendant declared its service of providing a solvency certificate as optional, the Court of Appeal ruled that this service is factually mandatory for consumers with low creditworthiness since their loan application would regularly be rejected without the defendant’s certificate. This applies to the large majority of the defendant’s potential customers. Therefore the solvency certificate fee has to be considered as a mandatory fee that has to be included in the calculation of the consumer loan’s APR pursuant to Section 6 (3) PAngV.

For now, the Court of Appeal’s decision has not yet become final. However, the defendant has only very limited possibilities of filing an appeal against the judgment. It might happen that the competent German Federal Supreme Court (Bundesgerichtshof) will not even decide on the case’s merits.

Practical implications

Although the Berlin Court of Appeal’s decision is not yet final and also does not constitute a legally binding precedent under German law, its reasoning may still be factually relevant for other courts. Therefore providers of consumer credits and credit intermediaries in Germany should be careful regarding the declaration of their loan’s APR. Attention should now also be paid to fees for services that are not set out as mandatory, but which in the end have to be seen as a factual prerequisite for a positive credit decision for at least a large number of consumers.

The decision also confirms once more that consumer protection associations have a strong power in Germany and pay a lot of attention to services addressed to consumers on the internet. For these associations it is particularly easy to review the pricing set out on websites and to bring infringements of the German Price Indication Ordinance to court. A wrong declaration of a consumer loan’s APR may lead to cease and desist letters by such consumer protection associations as well as to corresponding orders by courts. At the risk of stating the obvious: Online-providers of consumer-loans should pay very careful attention to their compliance with consumer protection law.

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