MODT is mandatory for home loans

Early repayment penalty: a pragmatic balance of interests is possible

A prepayment penalty is used to compensate for a financial loss that a lender incurs as a result of a borrower repaying a loan early, contrary to the contractual provisions, or defaulting on his debt servicing. Any damage suffered by the lender because the borrower unlawfully refuses to accept a contractually agreed loan is to be reimbursed by means of a so-called non-acceptance compensation. The amount is calculated according to the same principles developed by the Federal Court of Justice (BGH) over the years.1 Whether the prepayment penalty is justified and appropriate has been debated legally for decades, especially since there are still no clear, legally binding rules for calculating the compensation. In a study from 2014, consumer advocates criticized that in almost two thirds of the cases examined, the compensation demanded by lenders was more than 2.5% above the value that would have resulted from the application of the procedures prescribed by case law

Another reason for the dispute is the decline in interest rates that has been going on for years. According to the Bundesbank, between April 2011 and September 2019 alone, the interest rates in new business for secured house loans to private households fell by 2.6 to 3.3 percentage points, depending on the duration of the fixed interest rate. Even if the downward trend has slowed down, the prepayment penalty can amount to several thousand euros, even with minor changes in interest rates, depending on the amount of the remaining debt, the remaining term of the loan, the form of repayment, etc., especially for commercial and real estate loans. In addition, the issue is also important when interest rates rise, as the treatment of prepayment benefits for the lender is also controversial.

Working group on early repayment penalties remains practically inconclusive

In the past, the legislature had always refused to regulate the details of the early repayment penalty in a legally binding manner.3 In connection with the Financial Supervision Law Amendment Act, the Federal Council once again called for “details and methods for calculating the early repayment penalty for consumer property loan contracts” to be laid down. However, the Federal Government referred to the joint working group set up by the Federal Ministries of Finance, Justice and Consumer Protection in July 2016 shortly after the adoption of the residential property credit directive, the results of which should first be awaited.4 They should check whether there is any need for further codification how the early repayment penalty should be calculated and how more transparency can be created.5 It presented its final report on September 18, 2018.6 However, it was not able to reach a consensus on any of the relevant questions, as the positions of the consumer and banking lobbies differed faced irreconcilably. In the end, there was also no agreement in detail on the two points presented as a “consensual recommendation” of a key date regulation to take account of special repayment rights and a waiting period regulation with regard to the accounting time.

After the practically unsuccessful attempt by the working group to make the calculation of the early repayment penalty more practicable and more transparent, it is unclear how it should proceed. Improvements are quite possible if one accepts that their exact calculation is practically impossible and therefore a fair and practicable solution requires a willingness to compromise.

The active-passive method

The amount of a prepayment penalty results from the difference between the present value of the outstanding interest and repayment payments from the loan agreement and the remaining debt at the time the loan agreement is terminated. If the difference is negative, it is referred to as a prepayment benefit, as in this case the lender benefits from an early termination of the contract. The payments to determine the present value are discounted with matching maturities by multiplying them with so-called zero bond discounting factors (ZBAF ).7 The BGH regards the values ​​for Pfandbriefe made available daily by the Bundesbank as the relevant interest rate curve, which can be seen as a plausible compromise, as it is This is a comparatively low-risk and practically feasible reinvestment alternative.8 For this purpose, the Bundesbank also publishes zero bond yields on a daily basis for terms of one year to 20 years.9 Since these zero bond yields only show full years, yields or ZBAF must be interpolated for broken terms. For the sake of simplicity and transparency, it would make sense to stipulate linear or exponential interpolation.10 The relationship between the zero bond yield, known as the spot rate, and the corresponding ZBAF for a term t is:

Using an example, Table 1 shows the calculation of a prepayment penalty. In accordance with the procedure shown, the present value of all contractually agreed interest and repayment payments must be calculated. The positive difference from the sum of these cash values ​​minus the remaining debt results in the gross prepayment penalty to be paid by the borrower. If, on the other hand, there is a negative difference, i.e. a prepayment benefit for the lender, in a different interest rate constellation, i.e. typically when the interest rate has risen compared to the time of the fixed interest rate agreement, this benefit should benefit the borrower accordingly. According to the current legal situation, however, the borrower is not entitled to it. Instead, the benefit is only credited up to the total amount of the damage. Any benefit that exceeds the damage remains with the lender. 11

Table 1
Calculation of a prepayment penalty
 t0t1t2
Remaining debt on the loan96 116,88  
Outstanding payments  100 000,00
Present value of outstanding payments before interest rate changes96 116,88  
Present value of the outstanding payments after a change in interest rates98 029,60  
Early repayment penalty, gross1 912,73  
Risk costs 0.1% p. a. -96,12-98,04
Present value of the saved risk costs-191,27  
Administrative costs saved p. a. -60,00-60,00
Present value of the saved administration costs-118,22  
Processing costs300,00  
Early repayment penalty, net1 903,23  

The example: The remaining debt of an interest-free and bullet loan is today (t0) 96 116.88 euros with a contractually outstanding payment of 100,000 euros in two years (t2). This corresponds to an interest rate of 2%, because the following applies: 96 116.88 * 1.022 = 100,000. The current spot rate is 1%. If the borrower only repays the remaining debt of the loan prematurely without paying an early repayment penalty, the lender suffers damage because he can only invest 1% of the amount received. So he misses 100,000 - 96 116.88 * 1.012 = 1 951.17 euros in t2, which corresponds to a decrease in present value of 1951.17 euros * 1 / 1.012 = 1,912.73 euros in t0 corresponds to. Accordingly, in addition to the remaining debt of 96 116.88 euros, the borrower also has to pay a gross prepayment penalty of 1,912.73 euros and thus a total of 98 029.60 euros. By investing this amount in the capital market at 1% for two years, the originally agreed payment flow of 100,000 euros is reproduced. (See K. Wimmer, E. Caprano: Finanzmathematik, 7th edition, Munich 2013, p. 182 ff.)

If, for example, in the case of private real estate financing, one assumes risk costs of 0.1% p. a., in the example for the 1st year these are 96 116.88 * 0.1% = 96.12 euros and for the 2nd year 96 116.88 * 1.02 * 0.1% = 98.04 euros . When discounted at 1%, this results in a present value of 191.27 euros, which reduces the early repayment penalty to be paid.

Source: own calculations.

As is customary in practice, the example is now to be expanded to include the handling of credit risk and administrative costs. The outstanding payment of 100,000 euros in t2 is subject to a credit risk. If the borrower repays the loan early, there is also no need to pay the lender compensation for the risk costs for the remaining term. This also applies to administrative costs that are not due to the early repayment. Risk premiums depend on the creditworthiness of the borrower and the collateral. For a transparent and pragmatic regulation, it would make sense to undertake certain standardizations for typical types of credit. Depending on the type of loan, average risk costs across the industry could be estimated from the parameters of the probability of default (PD) and loss rate in the event of default (LGD) determined by the banks for capital adequacy and also published by the Bundesbank or the Federal Financial Supervisory Authority (BaFin). For example, for claims secured by real estate, without small and medium-sized companies, the Pillar 3 report of Deutsche Bank shows a weighted average risk premium as a product of PD and LGD in the range that is probably still relevant for new assignments up to a rating of B- in the amount of 0.12% p. a. determine which is somewhat above the often cited values ​​of up to 0.06% accepted by case law.12 One could also calculate corresponding industry averages.

In the opinion of the BGH, the administrative costs saved for the borrower are to be calculated regardless of the amount of the remaining debt. If they proceed in accordance with the contract, these are likely to be of secondary importance. In the courts, for example, savings of between EUR 30 and EUR 60 p. a. considered appropriate.13 The present value of these saved costs also reduces the early repayment penalty to be paid. Finally, the lender is entitled to a processing fee for calculating the early repayment penalty, for which, depending on the circumstances, the courts can estimate 250 to 400 euros (in the example 300 euros) .14 Measured against the wage costs in the financial services sector15, the administrative costs saved should be due to the automation p. a. a problem-free loan is less than 120 euros and the processing fee per calculation is less than 250 euros.

In view of the components required to calculate the early repayment penalty, i.e. the interest rate curve to be used for discounting and a corresponding reinvestment, assumptions about the exercise of special repayment rights, as well as the amount of risk, administration and processing costs, the early repayment or Do not precisely calculate the damage that will result from non-acceptance, but only estimate it in a plausible manner and only with technical help. The use of estimates to calculate damage is therefore inevitable, but it is also legally recognized in accordance with Section 287 of the Code of Civil Procedure. 16

Comparison with the active-active method

In its judgment of July 1, 1997, the BGH took the view that a bank can calculate the damage it incurs as a result of early repayment or non-compliance with a loan in breach of duty.17 In the case of the asset-liability method, the compensation payment is made in one sum determines the damage caused by the fact that the capital received early cannot be invested at the originally agreed contractual interest rate, but at the current capital market interest rate. With the active-active method, the early repayment penalty is calculated from the sum of interest margin damage (lost net profit before tax) and interest deterioration damage (damage from reinvesting the capital received early at a current capital market interest rate below the original refinancing costs of the lender). Whether the bank actually refinanced the loan with matching maturities, or whether instead it entered an interest rate risk from a maturity transformation, is irrelevant for the analysis. The amount of the margin resulting from the customer business (condition contribution) is decisive for the calculation of the interest margin damage, since the bank can enter into interest rate risks at any time independently of the customer business and thus achieve a structural contribution. 18

Both methods lead to the same result if used correctly. However, the active-passive method is much more practicable to use.19 In addition, the unfounded coexistence of the procedures and the imprecise formulation of the BGH on the procedure for calculating the interest rate loss damage has the unintended consequence that the damage calculations can be different depending on the calculation method.

Table 2
Calculation of a prepayment penalty according to the active-passive and active-active method
 Interest rate scenarioA.B.C.
1Original loan rate3,03,03,0
2Refinancing rate when lending2,02,02,0
3Current lending rate t01,00,51,5
4Current refinancing and capital market interest rate t010,00,00,0
5 = 1 - 4Total damage active-passive3,03,03,0
6 = 1 - 2Interest margin damage1,01,01,0
7 = 2 - 4Correct interest rate deterioration damage2,02,02,0
8 = 6 + 7Correctly calculated total damage active-active3,03,03,0
9 = 6Interest margin damage1,01,01,0
10 = 1 - 3Incorrectly calculated interest rate deterioration damage2,02,51,5
11 = 9 + 10Incorrectly calculated total damage active-active3,03,52,5

1 The bid-ask spread is neglected here for the sake of simplicity.

Source: own calculations.

This is shown in Table 2 using an example: 20 Here, 3 interest scenarios are used at the time of early repayment in t0 considered. For the sake of simplicity, the current capital market interest rate is currently assumed to be 0.00%, which is not unrealistic, and only the current loan interest rate in t0 varies. As can be seen in table 2 in lines 5 and 8, if both methods are used correctly, the damage is 3%. According to the active-passive method, all you need to calculate the early repayment penalty is the original loan interest (line 1) and the capital market interest rate in t0 (Line 4) from the Bundesbank statistics. According to the active-active method, the interest margin damage of 1% is determined from the difference between the loan interest and the refinancing interest at the time the original loan was granted (line 6). In addition, there is a worsening interest rate damage of 2% from the difference between the refinancing rate and the reinvestment rate (line 7). Obviously, this method is more complicated because the refinancing rate is needed as additional information when lending. The value calculated according to the active-passive method is therefore broken down into two components within the framework of the active-active method, without this being necessary for the calculation of the early repayment penalty.

It is therefore incomprehensible that the BGH allows the interest margin damage to be estimated on the basis of an average profit that is usual for banks of the same type within the framework of the active-active method and thus creates new problems, since calculating with the actual margin leads to internal disclosure Operating data. In addition, the BGH incorrectly formulated the procedure for the active-active method, so that if it is applied literally, depending on the interest rate constellation, incorrect calculations can result. According to the Federal Court of Justice, the deterioration in interest rates is to be determined by comparing the “contractual interest and the re-lending interest”, ie the original and the current loan interest. As Table 2 shows, this approach only leads to the correct result if loan and capital market rates change in harmony, i.e. the interest margin in old and new business remains constant. However, this is not the case in practice. As in scenario B, if the margin in new business in t 0 (0.5%) is lower than for the original loan (1.0%) because the lending rate (from 3.0% to 0.5%) has fallen more than the capital market interest rate (from 2.0% to 0.0%), the active-active method overstates the damage and vice versa. The bank thus has the de facto right to choose to use whichever method is more favorable to it for calculating the damage.

Further inconsistencies in the legal regulations

Whether and to what extent a borrower has to pay a prepayment penalty depends not only on the interest rate trend, but also on the interest rate agreement, the type of loan or the borrower as well as the statutory and contractual rights of termination.21 The obligation to pay a prepayment penalty only applies in the case of early repayment Repayment of fixed-rate loans into consideration. The term `` period of legally protected interest expectation '' developed by the BGH is important for determining the amount of damage.22 Accordingly, in the event of early repayment, the lender is only entitled to early repayment penalty for the period in which the interest rate is fixed. However, after ten years at the latest, the borrower may terminate the contract with a notice period of six months (Section 489 (1) No. 2 BGB). This means that even with an original fixed interest rate of 15 years, a borrower can repay early after ten years and six months without paying an early repayment penalty.

In addition, contractually granted special repayment rights reduce the legally protected interest rate expectation. They must therefore be taken into account when calculating the early repayment penalty in favor of the borrower.However, exercising special repayment rights can have a disadvantageous effect on the borrower in certain interest rate constellations.23 Therefore, it would have to be calculated for each special repayment option whether it has a positive or negative effect on the amount of the early repayment penalty. In view of the lack of legal regulation and for practical reasons, the working group suggested that the earliest possible exercise in full should always be assumed for a comparative calculation. There was no consensus as to whether the borrower should be allowed to exercise the special repayment that is more favorable to him.24 In addition to calculating the early repayment penalty without taking into account the special repayment rights, the borrower should also have the choice between a standardized consideration, which is also subject to a fee to leave a consideration of the special repayment rights to be determined by the borrower himself. For the standardized calculation, instead of assuming the earliest possible exercise of all rights, a procedure would be considered that only provides for the exercise of the special repayment rights if the corresponding forward rate is below the agreed loan interest.

In addition, there are statutory termination rights, which, however, do not release you from paying an early repayment penalty in the event of early repayment of fixed-interest loans. For general consumer loans, however, the special feature is that they can be repaid at any time and without giving reasons, whereby the prepayment penalty for remaining terms of more than one year may amount to a maximum of 1% and otherwise a maximum of 0.5% of the amount repaid early (§§ 491 para .2 and 502 (3) sentence 1 BGB) .25 In addition, borrowers can use all loans that are secured by land or ship liens (Section 490 (2) BGB) as well as fixed-interest consumer real estate loans (Section 500 (2) sentence 2 BGB) early against payment of a prepayment penalty, which was calculated according to the procedures approved by the BGH, if there is a legitimate interest.26 This is the case, for example, if the borrower sells the property on loan, but not if he moves to a cheaper one Want to reschedule a loan. 27

Finally, loan agreements can also be terminated prematurely by mutual agreement at any time. The contractual partners can freely negotiate the early repayment penalty, although the fee in the sense of § 138 BGB must not be immoral.28 It is incomprehensible that amounts, which, depending on the individual case, are between 20% and 100% above the amount correctly determined in the case of a right of termination The obligation to pay an early repayment penalty does not apply if the borrower simultaneously takes out a new loan from the lender in excess of the amount on the same or worse terms or provides a replacement borrower whom the lender has to accept.30 This applies even if the borrower cancels for an important reason, for example as a result of a breach of duty by the lender, pursuant to Section 314 (1) BGB.

Conversely, the BGH came to the opinion that in the event of termination in the event of default by the debtor, the lender can only claim the damage caused by default, but no early repayment penalty, although a right to compensation through the termination is not excluded according to Section 314 (4) BGB .31 The BGH ignores the fact that early repayment penalties and default damages are two different types of damage. This leads to the unsatisfactory result that a defaulting debtor whose credit has been canceled due to default is exempt from paying an early repayment penalty, while a contractually loyal debtor has to pay early repayment penalty in the event of early repayment.32 Since the BGH itself has shown that the In addition to the right to compensation for the damage caused by default, the lender is also entitled to early repayment penalties; if he claims compensation instead of terminating, the legislature should make it clear that the lender is also entitled to compensation for both components of the damage in the event of termination

The legal rules described give rise to further inconsistencies that the legislature should correct, whereby some points have EU legal implications. First of all, it is hard to see why prepayment penalties are only payable in the event of early termination of fixed-rate loans. The BGH has repeatedly emphasized in its judgments that borrowers are entitled to compensation for lost profit under Section 252 of the German Civil Code.34 This damage naturally also occurs with variable-interest loans, since the borrower uses the agreed interest margin as a surcharge on the reference interest rate over the Contract duration is calculated. The fact that a minority of the working group members once again denied the basic justification for compensation for lost profit is incomprehensible in view of the lack of valid counter-arguments. 35

Furthermore, the justification and meaningfulness of preferential treatment for general consumer loans must be questioned. The regulations contradict the claims made by the then federal government itself in connection with the treatment of real estate consumer loans that an unlimited right of termination and a cap on the early repayment penalty make fixed-rate loans more expensive.36 However, only the latter is to be regarded as valid, since at least then an unlimited right of termination does not lead to an increase in costs if the lender is economically placed by paying a prepayment penalty as if the loan had been serviced in accordance with the contract until the end of the fixed interest rate.

It follows from this that, in the interests of consumers, one should abandon the special treatment described and instead grant all borrowers an unlimited right of termination in return for payment of an appropriate early repayment penalty, especially since the right to early loan settlement for legitimate interests is interpreted very broadly anyway.37 Such The regulation would also relieve the courts, since neither the question of the justification of a termination nor the question of the immorality of cancellation fees would have to be examined

Conclusion

The study shows that at least the following aspects of the legal rules and the practice developed by the BGH are worthy of criticism and therefore offer starting points for corresponding legal changes:

  • Instead of the current coexistence of two or three calculation methods developed by the BGH, the active-passive method should be legally binding as the only permissible procedure.
  • The parameters required for the calculation according to the active-passive method should be specified in a legally binding manner.
    • The zero bond discounting factors required to calculate the present value are already published daily by the Deutsche Bundesbank.
    • Depending on the type of loan, the risk costs could be derived as average values ​​for the entire industry from the PD and LGD parameters determined by the banks for the capital adequacy and also made available by the Bundesbank or BaFin.
    • The saved administration costs p. a. and the processing fees required for calculating a prepayment penalty could be set at a flat rate slightly below the currently accepted values ​​and, if necessary, adjusted annually to the salary development.
  • The different treatment according to fixed interest rate and loan type or borrower should be abandoned in favor of a uniform procedure with the following consequences:
    • Borrowers should be able to redeem loans at any time against payment of an early repayment penalty.
    • Cancellation fees should correspond to the amount of the early repayment penalty, which would automatically be given in the event of an unrestricted right of termination in return for early repayment penalty.
    • Borrowers should have the right to an early repayment benefit.
    • Lenders should receive a prepayment penalty that is calculated regardless of the type of loan or borrower and with no statutory upper limit, as is currently provided for general consumer loans.
    • Lenders should also receive early repayment penalties to compensate for the loss of margin if they redeem a floating rate loan early.
    • In the event of termination as a result of a breach of duty by the borrower, lenders should not only have the right to compensation for the default damage but also a right to early repayment penalty.

Although this package of measures seeks to achieve a balanced balance of interests between borrowers and lenders, the barriers to implementation are likely to be very high in view of the need for explanation, resentment towards banks and the implications of EU law.

  • 1 Due to the broad correspondence between the issue of early repayment penalty and non-acceptance fee, only the early repayment penalty is mentioned below.
  • 2 Federal Association of Consumer Organizations: prepayment penalties: review and assessment of the appropriateness and legality of compensation payments from consumers for prematurely terminated real estate loans, as of July 2014, https://www.vzbv.de/sites/default/files/downloads/Vorfaelligkeitsentschaedigungen_Untersuchung_vzbv_2014. 2019).
  • 3 Cf. draft of a law for the modernization of the law of obligations, 2001, Bundestag printed matter 14/6040, p. 255; see information from the federal government, draft of a law for the implementation of the residential real estate credit directive, Bundestag printed matter 18/6286; Statement by the Federal Council and counter-statement by the Federal Government, 2015, Bundesrats-Drucksache 18/5922, p. 24; See draft of a law for the implementation of the Residential Property Credit Directive, 2015, Bundesrat-Drucksache 359/15, p. 9.
  • 4 Cf. draft of a law to supplement the financial services supervisory law in the area of ​​measures in the event of threats to the stability of the financial system and to amend the implementation of the residential property credit directive - Financial Supervision Law, 2017, Bundesrat-Drucksache 815/1/16, pp. 26-29; See resolution recommendation of the Finance Committee on the draft law of the Federal Government, draft of a law to supplement the financial services supervisory law in the area of ​​measures in the event of threats to the stability of the financial system and to change the implementation of the residential real estate credit directive - Financial Supervision Law, 2017, Bundestag printed matter 18/11774, p. 31.
  • 5 Cf. Federal Ministry of Finance: “Joint working group of BMJV and BMF on the subject of early repayment penalty” of July 21, 2016.
  • 6 See final report of the working group prepayment penalty from September 18, 2018, https://www.bundesfinanzministerium.de/Content/DE/Standardartikel/Themen/Internationales_Finanzmarkt/Finanzmarktpolitik/2018-11-06-Vorfaelligkeit.html (December 13, 2019).
  • 7 Consideration of bid-ask spreads should be neglected due to their negligible importance for the result in normal times and in terms of a pragmatic solution. On the subject cf. K. Wimmer, P. Rösler: Prepayment Compensation for Early Termination of Loan Agreements, in: Zeitschrift für Wirtschafts- und Bankrecht, Vol. 59 (2005), No. 40, p. 1876.
  • 8 See BGH judgment XI ZR 285/03 of November 30, 2004.
  • 9 See Deutsche Bundesbank, https://www.bundesbank.de/dynamic/action/de/statistiken/zeitreihen-datenbanken/zeitreihen-datenbank/759778/759778?listId=www_skms_it04a (13.12.2019).
  • 10 See H. Hewicker, H. Cremers: Modeling of Yield Curves, Frankfurt School - Working Paper Series, No. 165, Frankfurt School of Finance & Management, Frankfurt a. M. 2011, p. 7 f.
  • 11 Cf. H.-M. Krepold: Right of termination, in: H. Schimansky, H.-J. Bunte, H.-J. Lwowski (Ed.): Banking Law Handbook, 5th edition, 2017, § 79, Rn 102; see E. v. Heymann, P. Rösler: Calculation of prepayment and non-acceptance compensation, in: Zeitschrift für Wirtschaftsrecht, 2001, no. 11, p. 449.
  • 12 See Deutsche Bank: Pillar 3 Report 2018, p. 96, https://www.db.com/ir/de/regulatorische-veroeffnahmungen.htm (December 13, 2019); see P. Rösler, K. Wimmer, V. Lang: Premature termination of loan agreements, Munich 2003, p. 139.
  • 13 In practice, the borrower also benefits from higher amounts of up to EUR 120 p. a. G. Nobbe: Book 2: Law of Obligations, Section 8: Individual Obligations, in: H. Prütting, G. Wegen, G. Weinreich (Ed.): BGB Commentary, 13th edition, Cologne 2018 , P. 874; See final report of the working group on early repayment penalties from September 18, 2018, a. a. Cit., P. 31.
  • 14 G. Nobbe, loc. a. Cit., P. 874.
  • 15 Federal Statistical Office: Guidelines for determining and presenting the compliance costs in regulatory projects of the Federal Government, December 2018, Annex VI Economic wage cost table, Economic Section K, p. 55.
  • 16 J. Luckey: Book 2: Law of Obligations, Section 1: Content of Obligations, in: H. Prütting, G. Wegen, G. Weinreich (Ed.): BGB Commentary, 13th edition, Cologne 2018, p. 387.
  • 17 BGH judgment XI ZR 267/96 of 1.7.1997, pp. 9-11 with reference to BGH judgment XI ZR 190/90 of 12.3.1991.
  • 18 H. Schierenbeck, M. Lister, S. Kirmße: Earnings-Oriented Bank Management, Vol. 1, 9th edition, Wiesbaden 2014, p. 66 f.
  • 19 On the advantages of the active-passive procedure as early as 1998: Cf. K. Wimmer: Early repayment penalty and highest court case law, Sparkasse, July 1998, No. 7, p. 326 ff.
  • 20 Cf. P. Rösler, K. Wimmer, V. Lang, a. a. Cit., Section E, p. 169 ff.
  • 21 Cf. M. Tonner, T. Krüger: Bankrecht 2A, Baden-Baden 2016, p. 191 ff.
  • 22 BGH judgment XI ZR 388/14, p. 11 f from January 19, 2016.
  • 23 If the forward rate is higher than the loan interest, the exercise of a special repayment is purely arithmetically disadvantageous for the borrower, since in this case he waives a higher interest rate than he has to pay for the loan. Cf. K. Wimmer, P. Rösler: Early repayment penalty: Kehraus? (1), in: Journal of Economics and Banking Law, 70th year (2016), no. 38, p. 1824 f.
  • 24 Final report of the working group on early repayment penalty dated September 18, 2018, p. 49 ff, p. 63 f.
  • 25 The cap on early repayment penalties and the right to repayment at any time in the case of general consumer loans follows the implementation of the Consumer Credit Directive Art. 16 2008/48 / EC on June 11, 2010. On the development of consumer loan law G. Nobbe, a. a. Cit., P. 875 f.
  • 26 The consumer real estate loans also include, for example, real estate loans without mortgage security.
  • 27 BGH judgment XI ZR 267/96 of 1.7.1997, p. 11; G. Nobbe, et al. a. Cit., P. 872.
  • 28 BGH judgment XI ZR 226/02 of 6.5.2003, p. 7.
  • 29 P. Rösler, K. Wimmer, V. Lang, a. a. Cit., P. 102 ff.
  • 30 G. Nobbe, loc. a. O., p. 874 f; BGH judgment III ZR 197/88 of November 30, 1989, p. 11; K. Werth: Questions of doubt about the early repayment penalty calculation, in: Zeitschrift für Wirtschafts- und Bankrecht, 58th year (2004), no. 9, p. 409 f.
  • 31 BGH judgment XI ZR 103/15 of January 19, 2016; as well as XI ZR 187/14 of November 22, 2016; to criticize it z. B. G. Nobbe, et al. a. O., p. 900; K. Wimmer, P. Rösler, a. a. Cit., P. 1821 f.
  • 32 In any case, this decision does not apply in the event that the bank terminates the contract, for example because of the deterioration in economic conditions. See K. Wimmer, P. Rösler, op. a. Cit., P. 1822.
  • 33 BGH judgment XI-ZR 445-17 of February 20, 2018.
  • 34 See, inter alia, BGH judgment XI ZR 190/90 of March 12, 1991; BGH judgment VIII ZR 317/93 of June 29, 1994.
  • 35 See working group on early repayment penalty, a. a. Cit., P. 23 f. It was alleged that only the early repayment of the bank's loan would enable new business in view of scarce resources. Equally absurd is the assertion that compensation for damages is not justified, since if a loan is redeemed early as a result of a sale, another buyer would typically take out a loan - albeit with a different bank - and so there would be no loss of margin from an economic point of view. See working group early repayment penalty, p. 23 f. This line of argument was rightly rejected by the BGH in XI ZR 267/96 of July 1, 1997.
  • 36 German Bundestag: Drucksache 18/5922, draft of a law for the implementation of the residential real estate credit directive of September 7, 2015, pp. 90, 92 f.
  • 37 BGH judgment XI ZR 267/96 of 1.7.1997, p. 11.
  • 38 K.-O. Knops: Non-acceptance and prepayment penalty, in: P. Derleder et al. (Ed.): German and European banking and capital market law, Berlin, Heidelberg 2017, p. 804 ff; K. Wimmer, P. Rösler: Early repayment penalty in the event of early termination of loan agreements, in: Zeitschrift für Wirtschafts- und Bankrecht, Vol. 59 (2005), No. 40, p. 1880.

Title: Prepayment Penalty: Balancing of Interests Pragmatically is Feasible

Abstract: Disputes about prepayment penalties have been keeping German courts busy for many years. This is partly because the German government has refrained to date from deciding on a legally binding method for the computation. Two federal ministries installed a working group, which presented its results at the end of 2018.However, the group was able to agree upon neither the methodology nor on improving the transparency of the computation. Whether and how the government will respond remains unclear. Therefore, this paper will describe the method of computation, investigate the most controversial subjects and present a few pragmatic solutions for further discussion.

JEL Classification: G210