A Hessian Volksbank has to waive the prepayment interest for its customer due to incorrect information in the loan agreement - according to a ruling by the Darmstadt Regional Court. The case is explosive because it could trigger a wave.
Ending construction financing early without additional costs - that's what many borrowers who sell their property dream of. In practice, however, banks charge massive prepayment penalties. According to the law, they are entitled to this to compensate for the loss of interest if the customer repays his money before the end of the fixed interest period.
However, the law also says: The bank loses the right to payment of the prepayment penalty if it does not correctly inform the customer about the calculation of the amount to be paid. A recent judgment by the Regional Court (LG) Darmstadt (Az. 13 O 6/22) could now cause difficulties for the credit institutions.
Because the court has decided that a Hessian Volksbank must waive the prepayment penalty of more than 14,000 euros for its customers. Reason: The bank incorrectly informed in the loan agreement about the basis for calculating the compensation.
There it says that the damage to the bank results from the difference between the contractual interest (i.e. the interest on the construction financing) and the return on mortgage Pfandbriefe with a term that corresponds to the remaining term of the loan to be redeemed.
But that's wrong: Because the (remaining) term of a loan is the period until the loan is fully repaid. In the present example, the bank specifies the term in the text of the contract as more than 33 years. However, this is completely irrelevant for the calculation of the prepayment penalty.
Rather, the period up to the earliest possible regular termination date by the customer is relevant. As a rule, this corresponds to the end of the fixed-interest period of the loan - usually ten years after conclusion. The calculation of the prepayment penalty may therefore only be made taking into account the return on mortgage Pfandbriefe with a term up to the earliest possibility of terminating the construction financing - and not their remaining term.
This may seem like an unimportant detail. However, since Pfandbriefe have very different yields depending on their term, this may also result in significantly different early repayment penalties. The error is therefore serious and could trigger a wave of customer demands.
According to our investigations, this error is found not only in the contracts of many banks from the cooperative sector (Volksbanken, Raiffeisenbanken, Sparda-Bank, PSD, BB Bank), but also in many savings banks, Schwäbisch Hall and a number of other credit institutions. The challenge of the Commerzbank mortgage loan is particularly promising, as other serious mistakes were made there.
Therefore, there are now good opportunities for property owners who are selling their property to avoid paying a prepayment penalty. Experience has shown that the banks are initially reluctant to release borrowers from the contract without payment. However, this often changes when the customer calls in a professional for assistance.
This so-called prepayment joker can also be used retrospectively - for loans that were taken out from 2016 and ended from 2019: Anyone who has since paid compensation to the bank should check whether they can reclaim it based on the latest case law.
About the author: Roland Klaus works as a freelance journalist in Frankfurt and is the founder of the revocation interest group. Klaus became known as a Frankfurt stock exchange reporter for ntv and the US financial broadcaster CNBC.
(This article was first published on Monday, August 08, 2022.)