The Federal Government intends to further strengthen consumer protection. Consequently, consumer protection in credit agreements is to be enhanced. The rights of withdrawal and return for consumer contracts are to be simplified, and uniform rights and obligations for cashless payment transactions in the European market are to be established. The Federal Government had already adopted the draft by the Federal Minister of Justice on november 5, 2008. This planned new regulation also serves to implement European directives (the Consumer Credit Directive and the civil law part of the Payment Services Directive).
Details of the regulations:
1. Consumer Loans
Information and Contract Explanation: In the future, consumers will be informed about the essential components of a loan even before concluding a loan agreement. This will enable consumers to compare various offers and make an informed decision, thereby reinforcing the ideal of a responsible and independently acting consumer. As soon as a specific loan choice becomes apparent, the consumer must also be provided with an explanation of the contract's main features.
- Advertising: Advertising for loan agreements will be more strictly regulated. Advertisers promoting loan agreements may not highlight only a single figure (e.g., a particularly low interest rate). Instead, they must also specify the other costs of the contract and illustrate this information with a realistic example. This will prevent misleading offers and empower consumers to assess the advantages and disadvantages of entering into a contract based on comprehensive information.
- Templates for Consumer Loans: In the future, uniform templates will be used for informing consumers about different credit agreements. These templates will clearly display all loan costs, enabling more effective comparison of various offers. The templates will be valid across Europe, allowing customers to obtain and compare offers from other European countries.
- Termination: The termination of loan agreements will be subject to new regulations. Lenders may only terminate open-ended contracts if a notice period of at least two months has been agreed upon. Consumers, conversely, may terminate an open-ended contract at any time, with their notice period not exceeding one month. For fixed-term contracts not secured by a real estate lien (such as a land charge or mortgage), consumers will be permitted to repay the loan in full or in part at any time. Should the lender demand an early repayment penalty in such instances, it will be capped at one percent of the prematurely repaid amount.
The new regulations will encompass not only pure loan agreements but also other financing transactions. Consequently, consumers will generally receive the same level of protection in installment payment transactions and financial leasing agreements as they do in consumer loan agreements.
2. Payment Services
In the realm of cashless payment transactions, largely uniform rights and obligations will apply across Europe for payment services. For the first time, consistent regulations will govern both purely domestic and cross-border payment procedures (e.g., bank transfers, card payments, direct debits). This will streamline cashless payments and enhance legal certainty for all stakeholders. A Single Euro Payments Area (SEPA) will empower payment service providers to develop Europe-wide procedures for euro payments (known as SEPA products).
Examples: A European direct debit system will enable electricity and telephone costs for a holiday apartment in Tenerife or rent for a student dormitory room during a stay abroad to be conveniently debited monthly from a German account. Furthermore, payments for orders from other European countries will no longer necessarily require a credit card; they can be processed via direct debit or bank transfer.
Consequently, regarding payment, a provider's location will no longer hinder customers from selecting the most favorable offer. Concurrently, consistent framework conditions will foster cross-border competition, as uniform requirements for customer information will simplify the evaluation of offers from foreign payment service providers.
Finally, the new regulations will standardize and shorten execution and value dating periods. Previously, cross-border transfers within the EU had to be completed within five working days. From January 1, 2012, all payment orders in euros must be executed within one business day. Until then, a 3-day execution period can be agreed upon. This will enable payment service users to fulfill their payment obligations more precisely and optimize their liquidity.
3. Right of Withdrawal and Return
The existing provisions concerning the right of withdrawal and return will be reorganized, leading to enhanced legal certainty not only for consumer contracts but also for insurance contracts. Businesses utilizing the new templates for their instructions on the right of withdrawal and return will no longer face the risk of competition law warnings or indefinite rights of withdrawal or return. Moreover, largely identical withdrawal periods and consequences of withdrawal will apply to distance selling transactions conducted via internet auction platforms and those in conventional online shops. The bill will be referred to the specialized committees after its first reading, with the objective of concluding parliamentary deliberations by the summer recess.
Source: Press release of the Federal Ministry of Justice
Goldberg Rechtsanwälte
Michael Ullrich, LL.M. (Information Law)
Attorney-at-Law and
Specialist Lawyer for Information Technology Law (IT Law)
E-mail: m.ullrich@goldberg.de
