The days of negative interest rates are over for the time being, but the whole thing is reverberating from a legal point of view. There are cases where the lender ends up paying interest to his debtor. What does the Federal Court of Justice say?
If so-called negative interest rates arise for a loan, banks do not necessarily have to pay them. According to a ruling by the Federal Court of Justice (BGH), the wording of the relevant agreement and the time at which it was concluded (Az. XI ZR 544/21) are decisive. The decision is likely to have significance beyond the specific case.
The term interest is not defined in the law, said the presiding judge of the eleventh civil senate, Jürgen Ellenberger. In the legal sense, interest is payment for the use of money that has been made available from time to time. “According to this definition, interest cannot become negative because it is remuneration.” One can therefore assume a lower limit of zero percent; it does not have to be explicitly stated.
It remains the case that the borrower is the payer of the interest in a loan agreement, emphasized Ellenberger. The lender has no obligation to pay interest. This flow of payments is not reversed by the interest rate policy of the European Central Bank (ECB).
The state of North Rhine-Westphalia, as the debtor, demanded money from the bank
The proceedings specifically concerned five identical promissory notes for EUR 20 million each, which the state of North Rhine-Westphalia had issued to the legal predecessor of DZ Hyp AG. An interest rate of a maximum of five percent was agreed in 2007, which was to be calculated according to a fixed formula around a fluctuating reference interest rate. A lower limit was not set. In the last year of the term from March 2016, this resulted in a negative value. The state of North Rhine-Westphalia demanded a total of almost 160,000 euros from the bank.
The state of North Rhine-Westphalia was largely right before the Düsseldorf Regional Court. The Düsseldorf Higher Regional Court, on the other hand, dismissed the lawsuit on the bank’s appeal, but allowed an appeal to the BGH in Karlsruhe. The eleventh civil senate there rejected this now.
Judge Ellenberger had previously said in the hearing that the vocabulary of the contracts, which speak of the loan debtor and the loan creditor, speak for the country’s obligation to pay. BGH lawyer Klaus Joachim Hartung, representing the North Rhine-Westphalian Ministry of Finance, argued that the mathematical formula used to calculate the interest rate is clear and enables both positive and negative results to be achieved. Those responsible at the bank would have known that when the contracts were concluded.
For the Hamburg bank, the lawyer at the BGH, Reiner Hall, replied that in 2007 nobody seriously expected negative interest rates. “Interest rates have changed,” he admitted. Contracts would be drafted differently today. You can then agree on everything – including dealing with negative interest rates. “But you just have to agree.”
The consequences of negative interest rates will continue to preoccupy the judiciary
The trigger for the negative interest rates in recent years was the monetary policy of the ECB. With this kind of penalty interest for money that financial institutions park at the central bank, they should be persuaded not to hoard it – but to spend it in the form of loans, for example. That should boost the economy. For consumers with current accounts, for example, in many cases this meant that banks or savings banks charged a so-called custody fee in addition to the account management fee.
The consequences of such negative interest rates will therefore continue to occupy the judiciary. According to a BGH spokesman, there are still five comparable procedures to be decided there alone. Another also affects the state of North Rhine-Westphalia, as announced by the Düsseldorf Ministry of Finance. In the case of negative interest on current accounts, the Düsseldorf Higher Regional Court had only decided at the end of March that these were legal. Here, too, it allowed an appeal to the BGH because of the importance of the matter.
Law professor Georg Bitter, who teaches banking and capital market law at the University of Mannheim, explained that in practice it is common to tie the contractual interest rate of a loan agreement to a reference interest rate. In its decision, the BGH based its decision very generally on the wording of the provision on money loans in the German Civil Code (BGB). This means that the judgment applies equally to loans that have been agreed with consumers and entrepreneurs. The question of how the BGH will decide when it comes to custody fees remains exciting. According to Bitter’s assessment, the current verdict does not allow any assessment of this.
However, the expert also criticized the Senate’s reference to the BGB provision. This was formulated at a time when nobody had thought of negative interest rates. “It is doubtful whether, in a completely changed market environment, one can rely so heavily on the wording of that ‘old’ provision.”
Source: Stern
