Questions and Answers
Berlin, 30.03.2020 by Peter Kleinwächter
Draft legislation to limit the impact of the COVID-19 pandemic in the civil, bankruptcy and criminal court systems
Consumer loan contracts concluded prior to 15 March 2020 are covered. A consumer loan contract is a loan contract which a consumer enters into to borrow funds for private purposes.
Only consumer loan contracts as defined above fall within the scope of the deferral rules. Whether a specific loan contract is covered by the rules depends on the borrower’s status as consumer. Loan contracts concluded for private purposes may be covered even though the individual is also a business entity, for example if a restaurant operator takes out a loan contract to finance the purchase of a home. Loan contracts concluded by a business entity for business purposes do not fall within the scope of the legislation at this time. The Federal Government will be monitoring further developments respecting the economic impact of the virus outbreak and considering whether to expand the programme to include additional groups.
Some loans cannot be considered consumer loans, such as subsidy/promotional loans, employer loans and loans for amounts less than 200 euros. Non-cash loans are not included in the deferral programme.
Lenders’ claims to repayment of principal and payments of interest due between the dates 1 April 2020 and 30 June 2020 will be deferred.
For the deferral to apply, the consumer must have lost income due to the COVID-19 pandemic to an extent that continuing to make payments of principal and interest under the loan contract would jeopardise the consumer’s ability to appropriately provide financially for him/herself and his/her financial dependants.
The deferral rules will be ordered by law and apply with immediate effect. Consumers should contact their lender, however, because they may be required to provide documentation of lost income due to the COVID-19 pandemic, such as by submitting an employer confirmation. The consumer also has to demonstrate that he/she will be unable to appropriately provide financially for him/herself and his/her financial dependants unless the due loan amounts are deferred. Consumers who are no longer able to meet their loan obligations due to the COVID-19 pandemic are thus advised to contact their lender to work out a solution in respect of resuming servicing of the loan when the impact of the pandemic subsides.
The initial deferral period is three months, thus the payment dates for the respective qualifying loan amounts due are moved back by that period of time. A principal and/or interest payment which would have been due on 1 April 2020 would then only be due on 1 July 2020.
During deferral, the consumer cannot be deemed in arrears on payments which have been deferred. Accordingly, the consumer will not owe late payment interest on deferred amounts due.
The loan contract is extended by the deferral period unless the lender and consumer mutually agree to a different solution. All dates pursuant to the contract, including the due dates of the respective interest and principal payments, are moved back accordingly. This means, for example, that loan amounts which would only be due for payment after the end of the deferral period are also moved back by a period of three months. A payment instalment due on 1 July thus would not be due until 1 October 2020, etc. This is to avoid a double burden on the consumer resulting from two instalments being due on the same date, e.g. if a deferred payment originally due on 1 April 2020 were then due simultaneously with the payment originally scheduled for 1 July 2020.
During the deferral period from 1 April 2020, it is prohibited to terminate a loan contract due to late payment, a deterioration in the consumer’s financial situation or a loss in value of posted collateral. Any notice of termination on these grounds issued between the dates 1 April 2020 and 30 June 2020 is void. Consumers are to be protected against termination for the above-mentioned reasons during this period.
The parties can mutually agree to deviating arrangements, such as partial payments, adjustments to interest and/or principal or debt rescheduling. The termination exclusions applicable during the deferral period cannot however be suspended by mutual agreement. The consumer retains the right to continue making either full or partial payments owed under the loan contract. The statutory deferral rules are thus not binding on the consumer in this respect.
The consumer can invoke the statutory deferral rules at any point during the statutory deferral period. It is irrelevant whether the consumer could have invoked the deferral rules at an earlier date, or if circumstances rendering it unreasonable for the consumer to make loan payments due to the COVID-19 pandemic only arise at a later point in time. The consumer cannot however invoke the deferral scheme to demand refunding of amounts paid.
The deferral scheme implemented in response to the COVID-19 pandemic may also have significant negative financial impact for lenders. In general, however, the consumer is deemed to have an overriding need for protection in weighing the respective interests of the parties. It is possible however that deferral or the termination exclusions may be unreasonable for the lender under certain circumstances, considering the specific factors in an individual case. In such exceptional cases, the respective interests must be weighed up, and it may then be deemed that the rules do not apply. Situations are conceivable, for example, in which a serious, culpable breach of duty by the consumer or improper conduct cause a permanent breakdown of the contractual relationship. In such a case, the lender is in need of protection.
If there are multiple signatories with joint and several liability, as long as one borrower meets the conditions for deferral the lender cannot demand payment of a deferred amount from another borrower. Also, as long as one borrower qualifies for deferral, the deferral rules apply in favour of that borrower and any parties with joint and several liability. Thus if any party with joint and several liability makes a payment to the lender, that party cannot demand compensation from the other borrowers during the deferral period if those borrowers meet the conditions for deferral to apply.
The Federal Government is empowered to extend the deferral period by ordinance through to 30 September 2020.
No they are not. Savings deposits do not fall within the scope of the rules, thus withdrawals from savings accounts will be possible in accordance with the contractual terms.
Download Original Document from Federal Ministry of Justice and Consumer Protection here: