Error in the contract: No prepayment penalty for KfW loans

For the first time, a court has awarded a real estate owner the repayment of the prepayment penalty for a promotional loan from the KfW Bank.

Error in the contract: No prepayment penalty for KfW loans

For the first time, a court has awarded a real estate owner the repayment of the prepayment penalty for a promotional loan from the KfW Bank. Many borrowers could benefit from this.

Banks are entitled to a so-called prepayment penalty if a borrower repays the loan before the fixed interest rate expires and the bank suffers an interest loss as a result. However, according to Section 502 of the German Civil Code (BGB), this only applies if the bank provides the customer with sufficient information in the loan agreement about the method of calculating the interest compensation.

However, as our experience shows, this is often not the case. Consequence: In many cases, borrowers can reclaim a prepayment penalty that they have paid. Now, with the regional court (LG) Limburg (Az.: 1 O 32/22), a court has decided for the first time that this is also the case for development loans from the Kreditanstalt für Wiederaufbau (KfW).

In the present case, a real estate buyer took out financing from a savings bank in 2016, which consisted of several components. On the one hand from a regular real estate loan from the savings bank, on the other hand from a loan from the savings bank insurance. The third building block was a promotional loan from KfW's home ownership program no. 124. The loans had different fixed interest rates of between 10 and 25 years.

The property was then sold in 2021. The savings bank charged the customer a prepayment penalty of a good 10,000 euros. About a quarter of this went to the KfW loan. The Sparkasse insurance company demanded a further 6,000 euros. The customer initially paid the compensation in order to be able to process the sale of the property.

A little later, however, he demanded the prepayment interest back. His argument: he was not correctly informed about the calculation of the prepayment penalty. In addition, the KfW loan contained no information at all about the calculation method.

The customer's claim is justified, according to the Limburg Regional Court in its judgment, which the interest group has contested. In particular, the contract for the KfW loan does not contain any information on how the prepayment penalty is calculated. However, this is absolutely necessary so that the bank has a claim to this payment. In fact, however, the contract only states that a prepayment penalty "of an appropriate amount" will be due.

However, this is not enough, according to the court in the judgment that is not yet final. The information in the other two loan agreements is also insufficient. The prepayment penalty paid must therefore be repaid in full to the customer. The judgment is so explosive because the loan agreements used are samples used by savings banks throughout Germany - and because a KfW loan is also affected for the first time.

It is important that the real estate loan must have been taken out after March 2016, as the relevant BGB passage only came into force at this point in time. According to our investigations, in addition to the savings banks, a number of other banks are also affected by such errors in loan agreements. These are particularly noticeable at Commerzbank and at cooperative credit institutions such as Volksbank, Raiffeisenbank and Sparda-Bank.

Borrowers who have prematurely terminated mortgage lending from this period and paid a prepayment penalty should therefore check whether they can reclaim this money. However, it is important to keep an eye on the statute of limitations. Prepayments that have been made since the beginning of 2020 can still be reclaimed.

About the author: Roland Klaus is the founder of the revocation interest group, which deals with consumer protection issues. He became known as a Frankfurt stock exchange reporter for n-tv, N24 and the US financial broadcaster CNBC.

(This article was first published on Thursday, January 12, 2023.)