Introduction Facts Analysis Comment
On January 26 2018 the Tubingen Regional Court held (4 O 187/2017) that negative interest on a consumer's existing cash deposits imposed by a German bank by unilaterally changing the bank's general terms and conditions was unlawful.
In times of low interest rates and bank customers' (both individuals and companies) preferences to save money, some banks are faced with big cash deposits on their accounts which can prove costly. In 2017 a German local bank decided to change its general terms and conditions unilaterally, intending to impose negative interest rates on certain types of cash deposit, for which the previous interest rate had been 0% per year. This negative interest would have affected both existing cash deposits and newly deposited cash.
A consumer protection association filed for injunctive relief against the bank. The court followed its motion and issued an injunction, ordering the bank to refrain from applying the negative interest provisions as set out in the bank's amended general terms and conditions.
The court had to decide about the lawfulness of a change in the applicable interest rate in relation to different types of cash deposit from a neutral 0% per year interest rate to a negative interest rate, which the defendant bank had tried to impose by changing its terms and conditions. The three different types of cash deposit were:
- deposits with unlimited terms that could be withdrawn daily;
- deposits of at least €25,000 with a 90-day termination notice; and
- deposits with no minimum amount, deposited for a fixed, agreed term with automatic renewal unless terminated by the customer.
The amendment of the general terms and conditions did not differentiate between existing deposits and newly deposited cash.
The court held that the way in which the bank amended the terms was unlawful in respect of consumers.
German law provides for a strict regime for general terms and conditions, particularly when it comes to consumer protection; although some of the protections set out in the law also protect non-consumers. Even though in this case the court had to consider consumer protection, the legal provisions cited also applied to non-consumers.
The court held that the defendant bank violated at least two separate provisions regarding existing deposits.
Material deviation from fundamental relationship between parties The court held that in relation to existing deposits, a change from a positive or neutral interest rate to a negative interest rate stipulates a material deviation from the fundamental basis of the relationship between the bank and its customer: depositing cash with a bank qualifies as a loan to the bank, for which the bank is obliged to pay interest (or no interest in case of a 0% interest rate). Imposing a negative interest rate for existing cash deposits would mean that the customer would now be obliged to pay a fee instead of being entitled to receive remuneration for its cash deposit or, at worst, receive no interest. Such a fundamental change in the existing relationship between the bank and the customer, particularly in reversing the payment obligation, cannot be unilaterally changed by the bank by amending its terms and conditions to apply to existing cash deposits.
Surprising amendment The court also held that for cash already deposited, in line with conditions which include a positive or neutral interest rate, a consumer need not anticipate that such an interest rate would become negative. To the contrary, a consumer enters into a transaction assuming that it will receive some or, in the worst case, no interest on its deposit. Having to pay interest on cash deposits (for which the customer had previously paid no interest) as a result of the bank changing its general terms and conditions was held to be surprising and therefore unlawful.
The court also highlighted further potential violations of transparency rules and the principle of good faith, but failed to express an opinion on them.
According to the court, the defendant bank violated the rules of the general terms and conditions regime because it did not differentiate between existing deposits and newly deposited cash. However, the court's injunction will not permanently prevent the defendant bank from applying negative interest rates in future.
The court applied the strict provisions of the general terms and conditions regime protecting consumers. These provisions also apply when general terms and conditions are used for non-consumers, but their application may be less strict as a result of any potential particularities of the commercial business relationship between the parties that should be considered when applying the law.
The court held that imposing the negative interest rate without distinguishing between existing and new cash deposits was unlawful. However, it did not state whether the ruling would have been different had the bank set the negative interest rate for new cash deposits only.
Based on this decision, existing cash deposits held with German banks appear to be protected from negative interest rates, but bank customers (consumers and businesses alike) should look for changes in their bank's applicable interest rates for new cash deposits.
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