Save or even get back prepayment penalties
1. Preface
It is not only the pandemic that forces some consumers or start-ups to pay off current loans early. Other private reasons, such as a divorce or death, can also lead to the need to sell a hard-earned property or close a business and repay the loan prematurely. If the bank then demands an prepayment penalty, the already strained situation can become even more financially acute. The amounts quickly run into five figures - in addition to the actual loan amount.
But some affected borrowers can sit up and take notice following a judgment by the Frankfurt Higher Regional Court in 2020. Even prepayment penalties already paid can be reclaimed under certain circumstances.
2. The problem
If a loan agreement with a consumer contains provisions on the prepayment penalty, these must be formulated in such a way that they contain sufficient information for calculating the prepayment penalty; Section 502 (2) No. 2 BGB. This provision is also applicable to business start-ups. According to the established case law of the German Federal Court of Justice (BGH), the information must therefore be clear and understandable for normal consumers.
3. The specific case
The case dealt with here concerned contractual clauses with which the bank had described the individual calculation steps. Specifically, the contracts stated with regard to one of the steps:
"In a further step, the Bank determines the amount it must invest at the scheduled date of prepayment so that the agreed amount would be available to the Bank at the scheduled contractual due date of the respective outstanding installment. In doing so, the Bank differentiates as follows: To the extent that mortgage bonds [...] are available, the Bank [...] shall apply the interest rates of the [...] mortgage bonds."
According to the court, this calculation step was not formulated with sufficient clarity. Therefore, the court considered this clause to be insufficient and thus invalid. Specifically, it stated:
"When it states that the Bank will determine what amount it must invest at the scheduled time of prepayment [...] and explains that '[the Bank] will differentiate [...] as follows', the consumer expects a description of this differentiated approach. However, the clause does not contain such a description."
(Judgment of the OLG Frankfurt (Main) of 01.07.2020; 17 U 810/19).
The Frankfurt Higher Regional Court subsequently left open whether other clauses of the loan agreement were invalid. The Federal Court of Justice (BGH) is currently deciding on the appeal for non-admission lodged by the bank against the judgment (pending there under file number XI ZR 320/20).
4. Conclusion
A large number of loan agreements, especially from the years before 2018, are likely to have insufficient information on the amount and calculation of the prepayment penalty. For concerned consumers or start-ups, it may therefore be worthwhile to have their loan agreement reviewed by a lawyer and to refuse to pay the prepayment penalty or to reclaim it. In any case, those founders or start-ups who have been hit by the pandemic should not tacitly accept any prepayment penalty demanded.
Do you have any questions related to prepayment penalties or loan agreements in general? We will be happy to give you advice! Please contact us by phone at +49 351 44753 0, by e-mail at central@schaffrathlaw.de or visit our website www.schaffrathlaw.de.
By your side
Schaffrath & Metzmacher Team
April 29, 2021
