The European Court of Justice has ruled in a preliminary reference that a borrower must be informed clearly and concisely about the withdrawal period and the other modalities for exercising the right of withdrawal, and that a mere reference to legal provisions is insufficient.
What was the subject of the ECJ judgment on the instruction concerning the right of withdrawal?
In 2012, the plaintiff, as a consumer, concluded a mortgage-backed loan agreement with Kreissparkasse Saarlouis. Section 14 of the loan agreement contained the following statement regarding the right of withdrawal:
The borrower may revoke their contractual declaration within 14 days without stating reasons, in text form (e.g., letter, fax, e‑mail). The period begins after the conclusion of the contract, but only after the borrower has received all mandatory information according to § 492 para. 2 BGB (e.g., information on the type of loan, information on the net loan amount, information on the contract term). …“
At the end of January 2016, the plaintiff revoked his contractual declaration regarding the loan agreement. Kreissparkasse Saarlouis, however, took the view that the withdrawal period had already expired when the plaintiff declared his revocation.
The plaintiff is seeking the unwinding of the loan agreement before the Saarbrücken Regional Court.
In the course of the proceedings, the Saarbrücken Regional Court raised questions as to whether proper instruction of the borrower regarding their right of withdrawal and its modalities also includes instruction on the commencement of the withdrawal period, and whether a mere reference to § 492 para. 2 BGB is sufficient for proper instruction of the borrower regarding the commencement of the withdrawal period. Against this background, the Saarbrücken Regional Court submitted its request for a preliminary ruling to the European Court of Justice.
What was the ECJ's decision?
Beyond questions of admissibility, the European Court of Justice addressed two of the three preliminary questions referred by the Saarbrücken Regional Court: specifically, the content of the instruction on the right of withdrawal and the permissibility of a reference to § 492 para. 2 BGB for instructing on the commencement of the withdrawal period.
How must the commencement of the withdrawal period be communicated?
According to the European Court of Justice, a loan agreement must clearly and concisely state the information necessary for calculating the withdrawal period. This follows from Article 10(2) of Directive 2008/48, read in conjunction with its 31st recital. Given the importance of the right of withdrawal for consumer protection, consumers must know in advance the conditions, time limits, and modalities for exercising this right (cf. judgment of 23 January 2019, Walbusch Walter Busch, C‑430/17, EU:C:2019:47, paragraph 46).
A mere reference to legal provisions is insufficient in the instruction on the right of withdrawal.
According to the European Court of Justice, the lender does not fulfill their information obligations regarding the commencement of the withdrawal period by merely stating a legal provision. Instead, the borrower must be informed clearly and concisely about the withdrawal period and the other modalities for exercising the right of withdrawal.
According to Article 14(1), second sentence, point (b) of Directive 2008/48, the withdrawal period only begins to run once the consumer has received the information pursuant to Article 10 of that Directive.
In the present case, the mandatory information was not included in the loan agreement. Instead, the borrower would have to intensively study the cited legal provision and verify whether the conditions are met. This examination (which is already unreasonable for the borrower) is further complicated by the fact that § 492 para. 2 BGB itself refers to additional German legal provisions. The borrower is thus confronted with a 'cascade reference'! This does not meet the requirements for clear and concise information.
To which consumer credit agreements does the ECJ judgment apply?
In short: For all types of consumer credit agreements!
Although the European Court of Justice addressed a consumer real estate loan agreement in the present preliminary ruling request, it had to consider whether the stringent information requirements regarding the right of withdrawal also apply to such agreements. This clearly indicates that these information requirements concerning the right of withdrawal apply all the more to all other consumer loan agreements.
What does the ECJ ruling mean for consumers?
If consumers entered into a loan agreement after June 11, 2010, the ECJ ruling presents excellent opportunities for a successful revocation of their loan agreement.
You therefore have the option
- For refinancing – Costly loans can be replaced by more favorable ones without incurring early repayment penalties.
- Expensive forward loans can be revoked without a “penalty payment”.
Which loan agreements can you revoke following the ECJ ruling?
You can revoke ALL loan agreements, provided the conditions are met!
You can, for example, revoke real estate loans, forward loans, loans for vehicles, cars, televisions, and other consumer goods. You can also revoke leasing agreements.
What happens after revocation?
Upon revocation, the contract is unwound. You will therefore receive back the installments paid and must then repay the loan amount to the bank. You can either “borrow” the money from another bank or, as is often the case, agree on more favorable terms with your current bank.
Federal Court of Justice (BGH) as a spoilsport – Has it destroyed the “revocation joker”?
In a decision (XI ZR 198/19), the BGH ruled that banks which adhered to the requirements of the German legislator had effectively informed customers about their right of withdrawal – irrespective of whether national German law complies with the provisions of the Consumer Credit Directive.
In another decision (XI ZR 581/18), the BGH determined that the EU Consumer Protection Directive does not apply to real estate loans secured by land charges and that only national courts decide on the conformity of national legislation with the directive.
Therefore, revocation is currently likely only an option if the bank has independently altered the official model revocation instruction and made errors in doing so. In such cases, the bank can no longer invoke the legal fiction of the official model revocation instruction.
Therefore, seek legal advice from us to ensure that the revocation becomes advantageous for you.
We are happy to assist you.
GoldbergUllrich Attorneys at Law (As of: April 30, 2020)
