Silence doesn´t mean consent.

Dr. Peter Klenk, Partner, on the consequences of the BGH ruling for German financial institutions

"Agreeing prices and fees in a legally secure way. Burying your head in the sand won't work!"


The German Federal Court of Justice (BGH) recently justified its ruling against the fee practices of German financial institutions. At the end of April, the court had ruled that banks, savings banks and cooperative banks cannot simply change their fees if customers do not object within two months. It was the end of the so-called consent fiction. The BGH now added: Customers have a good chance of being reimbursed if fees were increased according to the "silence is consent" principle. 
Dr. Peter Klenk is a zeb partner in the Retail Banking Practice Group and specializes in pricing and marketing management.

Mr. Klenk, what do management boards of banks, savings banks and cooperative banks have to pay attention to now?
Following the BGH ruling, they must assume that up to 90 percent of the prices and fees charged to customers for accounts and cards have not been agreed in a legally secure manner. They should therefore establish legal certainty as soon as possible or reset the customer relationship to a basis that was also agreed with the customer - according to initial estimates as of January 1, 2018, i.e. around 3.5 years ago. The very best way, however, would be to gain the active consent of customers for the current prices. A few institutions are in the process of doing this, but most do not have the necessary processes in place. One thing is certain: burying your head in the sand won't work. Boards need to ensure that prices are charged very quickly that have been agreed to in a legally secure manner, i.e., with active consent.  

Prices not legally compliant since 2018? What happens to the difference then?
Every bank, savings bank and cooperative bank must acknowledge: A differential loss has been incurred, which must be paid out if customers demand it. While the basic problem affects all institutions in the same way, the calculation of damages differs in each bank depending on its business model and pricing policy. Not all products and price points will be equally relevant. Of course, in most cases it will be about current accounts, but institutions do adjust a lot via the GTC. Continuous fees - for accounts, securities accounts and safe deposit boxes - will probably be affected more than, for example, fees for one-off transactions - such as buying shares. This makes it clear how complex the problem is. All financial institutions currently have a lot of work ahead of them to determine which products and prices are affected - and what it all costs to the bottom line. After that, of course, provisions have to be set aside in the balance sheets. At large institutions like Deutsche Bank, this amounts to 100 million euros alone, as recently reported in the press.

... because the differential loss has to be paid out to every customer?
Not necessarily. Financial institutions only have to refund unlawfully charged fees and charges if a customer approaches the institution and demands it. That's important, because it means things don't have to turn out as badly as some institutions currently fear. It may well turn out that customers are just as passive in asking for money back as they are in objecting to price increases. But institutions must be prepared for these requests - whether they arrive as a lawyer's letter, a handwritten customer letter or a completed form from a consumer protection association. Each submission will have to be examined and calculated individually - after all, it may be that a follow-up contract has been concluded with the customer's active consent since 2018. 

Does this mean that banks, savings banks and cooperative banks should wait and see?
No. Every institution should proactively inform its customers that it has the BGH ruling on its radar, if only to prevent warnings. It would be negligent not to react at all. But according to various lawyers, no institution is obliged to proactively pay a lump sum or a precisely calculated amount to all customers - only to those who come forward and actually have a claim. Many institutions have been caught cold by the ruling, and they first need to buy time, quantify the damage and set up processes similar to "complaint management" to deal with claims, among other things. 

That sounds like a lot of work. How can zeb make the task easier for the institutes?
zeb offers every institution a classic site assessment: Which products, which fees and charges are affected at all? And which legally agreed price applies now, the one from 2018 or possibly a different one on a case-by-case basis? We set up processes to respond to different types of customer inquiries. We then help the houses calculate any recoveries at the individual account/individual customer level. Normally, we use our simulations and databases to quantify the impact of price changes. Now we are using them to estimate the cost side. But there are also a lot of other questions: What happens, for example, to fees that have been refunded under loyalty programs? And what would a reversal look like here?

Beyond costs and provisions, does this also have an impact on the business model and future sales processes?
Yes. In the future, it will be a matter of actively obtaining customers' consent for fee and charge increases in a legally secure manner. Other countries, such as Austria, have already gathered many years of experience in this area and have implemented this via e-signatures in online banking. In addition, benefits and services such as additional features or loyalty bonuses will become much more important. Because if an institution cannot justify why the account costs are now two or three euros more expensive than before, "active consent" will become much more difficult. Or they may keep base prices stable, but turn more and more flat-rate services into fee-based services. No matter what institutions do now: The days when they could quietly raise fees on tens of thousands of accounts in one fell swoop are over. Intelligent processes for obtaining active consent and, from the customer's point of view, "value-added" services are the success factors of the future if they are to continue to realize stable earnings.