In the end of March 2020, the Court of Justice of the European Union (“ECJ”) ruled that a so-called “cascade reference” (Kaskadenverweis) does not meet the requirements of the Consumer Credit Directive. That means that in the information regarding the time period during which a consumer may withdraw from a contract, a further provision is referenced and decisive for the end of such period so that it cannot be determined by reading the information alone. This raises the question of the impact of the ECJ’s ruling on leasing contracts in Germany.
Background
The template for informing consumers of their withdrawal rights for general consumer loan agreements and consumer loan agreements secured by mortgage as contained in the German Introductory Act to the Civil Code (Einführungsgesetz zum Bürgerlichen Gesetzbuch, “EGBGB”) provided for the following cascade reference until 2016:
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“The borrower may withdraw his contract declaration within 14 days (…) The period starts after the conclusion of the contract, but only after the borrower has received all mandatory information pursuant to § 492 Abs. 2 German Civil Code (Bürgerliches Gesetzbuch, “BGB”) (e.g. information on the type of loan, information on the net loan amount, information on the contract period).”
This wording is still contained in the current template for withdrawal right information for general consumer loan agreements. Pursuant to Art. 247 § 12 para. 1 sentence 1 EGBGB, it is also to be used for contracts regarding financial assistance against payment, i.e. in principle also leasing agreements. Since 2016, the wording is no longer included, however, in the template for withdrawal right information for consumer loan agreements secured by mortgage.
Collision of ECJ and the German Federal Court of Justice
In the past, the German Federal Court of Justice (Bundesgerichtshof, “BGH”) has ruled on various occasions that it considers a cascade reference as outlined above to be sufficient to comply with statutory information obligations (see for example BGH, D. f. 22 November 2016 – XI ZR 434/15; BGH, O. f. 19 March 2019 – XI ZR 44/18).
The ECJ now ruled in its decision dated 26 March 2020 (case no. C-66/19) that such wording does not meet the requirements of Art. 10(2)(p) in conjunction with Art. 14 of the Consumer Credit Directive. According to the ECJ, the time period for exercising his right of withdrawal does not – contrary to Article 10(2)(p) – become apparent to the consumer in ‘clear and concise form’. In the case decided by the ECJ, a consumer loan agreement secured by mortgage was the subject of the dispute.
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By GlobalDataOn 31 March 2020, only a few days after the ECJ’s decision, the BGH issued a court order (case no. XI ZR 581/18) regarding a consumer loan secured by mortgage and ruled that the borrower could not rely on the ECJ’s decision. According to the BGH, the case is not within the ECJ’s competence because pursuant to its Article 2(2)(a) and (c), the Consumer Credit Directive does not apply to loans secured by mortgage. Moreover, such protective mechanisms did not originate from the implementation of the Directive but had rather been included in German law since before the adoption of the Consumer Credit Directive. The national courts therefore have sole jurisdiction to interpret them according to the BGH.
In another court order dated 31 March 2020 (case no. XI ZR 198/19) regarding a case involving a loan-financed vehicle acquisition, the BGH also pointed out the limits of interpreting German law in conformity with the Directive. By mandating the legal validity of the withdrawal information templates in Art. 247 § 6 para. 2 sentence 3 EGBGB, the German legislator had expressly permitted the cascade reference contained in the templates. The BGH argued that the national courts were bound by this legislative decision because of the rule of law principle in Article 20.3 of the German constitution. Moreover, the BGH referenced case law of the ECJ in which the ECJ consistently ruled that the obligation to interpret national law in conformity with EU law may not lead to interpreting national law contra legem. The BGH did not question the ECJ’s competence in this case.
Assessment
What is the impact of those decisions with respect to the German market? First, it should be noted that the ECJ’s decision is not binding on Germany’s lower courts. Although German lower courts are not strictly bound by the decisions of the BGH either, deviating from BGH rulings carries the risk that their court rulings will be overturned. It can thus be assumed that lower courts in Germany will decide cases in line with the BGH, i.e. that a withdrawal right information will not be challenged if it corresponds with the wording of the withdrawal right information template contained in the EGBGB.
Regarding car leasing contracts based on kilometer allowance, the lessors also benefit from the fact that numerous courts have recently ruled that lessees do not have a right of withdrawal solely based on the leasing concept of kilometer allowance. They ruled that leasing contracts with kilometer allowance without the lessee’s obligation to purchase the vehicle afterwards (and without a residual value guarantee) do not constitute financial assistance against payment within the meaning of § 506 Para. 2 BGB and the provision is not to be applied by analogy (OLG Stuttgart, D. f. 29 October 2019 – 6 U 338/18; OLG Munich, O. f. 30 March 2020 – 32 U 5462/19; LG Offenburg, D. f. 7 June 2019 – 3 O 426/18; LG Heilbronn, D. f. 15 October 2018 – Bi 6 O 246/18). Should the courts therefore not follow the BGH with regard to the cascade reference, it can further be argued that the information on withdrawal rights was not necessary in the first place as the lessee had no withdrawal right (unless it is triggered by other circumstances under which the contract was entered into).
Outlook
The at times fairly aggressive marketing by some German law firms specializing in litigating consumer protection cases in connection with the possible threat of economic hardship among consumers is likely to lead to an increased volume of litigation among lessors. Lessors in Germany should start preparing for this and in particular review which of their leasing contracts contain the above-mentioned wording and, if they do, check whether the lessor had modified the wording. If the wording has been amended and modified, it is no longer deemed to be legally valid by law. Lessors should then prepare their defense strategy based on the considerations outlined above. There are plenty of convincing lines of argumentation at hand.
Written by McDermott Will & Emery Rechtsanwälte Steuerberater LLP
