The Legal 500

Twitter Logo Youtube Circle Icon LinkedIn Icon

GRP Rainer LLP

AUGUSTINERSTRAßE 10, 50667 COLOGNE, GERMANY
Tel:
Work +49 221 272 27 50
Fax:
Fax +49 221 272 27 52 4
Email:
Web:
www.grprainer.com
Berlin, Bonn, Cologne, Dusseldorf, Frankfurt, Hamburg and 3 more

Show all Press releases

BGH – Bank must explain risk if interest rate dependent on exchange rate

May 2018

If the interest rate on a loan is based on the development of exchange rates, the bank has a duty to inform with respect to the foreign exchange risk. That was the verdict of the Bundesgerichtshof (BGH), Germany’s Federal Supreme Court, in a recent ruling (XI ZR 152/17).

The appreciation of the Swiss franc against the euro has caused problems for a number of borrowers. Notwithstanding this, the relevant bank must explain the exchange rate risk present. We at the law firm GRP Rainer Rechtsanwälte note that according to a judgment of the Bundesgerichtshof from December 19, 2017, this duty to inform also applies if the interest rate on a loan is based on the exchange rate.

The instant case concerned a loan in the amount of approximately 3 million euros that had been taken out by a municipality in North Rhine-Westphalia. The interest rate for the first 20 years was supposed to be 3.99 per cent p.a. assuming an exchange rate from euros to Swiss francs equal to or greater than 1.43. In the event of the euro falling below this threshold, the interest rate would then be 3.99 per cent plus half of the change in the exchange rate from 1.43. During the consultation, the bank pointed out that the Swiss National Bank, Switzerland’s central bank, would adopt a zero interest rate policy in the event of the Swiss franc appreciating and that their threshold for intervention was 1 euro to 1.45 Swiss francs. Additionally, there was a table showing the respective interest rate for exchange rates ranging from 1.39 to 1.65. From a rate of 1.42 to 1.39, the interest rate increased incrementally from 4.34 to 5.43.

In the end, the franc appreciated so strongly that the municipality was supposed to pay an interest rate of 18.99 per cent p.a. It therefore considered the loan agreement to be unjust and void. Moreover, it claimed that the foreign exchange risk had not been properly explained. Despite the municipality’s claim being unsuccessful before the first two courts of instance, the BGH reached a different conclusion.

Although the loan agreement was not found to be unjust, the bank had failed to fulfil its duty to inform. While the dependent relationship between the interest rate and the exchange rate was said to be apparent from examining the agreement, the bank had not explained with sufficient clarity the risks associated with an obligation to make interest payments based on an exchange rate, but instead downplayed these. The court of appeal must now rule on the case anew.

When it comes to problems concerning loan agreements, lawyers who are experienced in the field of banking law can serve as competent advisors.

https://www.grprainer.com/en/legal-advice/banking-law.html

Legal Developments by:
GRP Rainer LLP

Legal Developments in Germany

Legal Developments and updates from the leading lawyers in each jurisdiction. To contribute, send an email request to
  • LAG Düsseldorf: Dismissal with immediate effect valid in response to threat

    Anyone who seriously threatens their employer or superior should expect to be dismissed with immediate effect. This was confirmed by a ruling of the Landesarbeitsgericht (LAG) Düsseldorf [Regional Labour Court of Düsseldorf] from June 8, 2017 (Az.: 11 Sa 823/16).
  • Tax evasion: Only voluntary disclosure affords protection from severe penalties

    Anyone who has been caught for tax evasion should expect to be faced with severe penalties. Voluntary disclosure is the only way of returning to a state of normal tax affairs and avoiding penalties.
  • GSK Update: AIFM Marketing in Germany - The clock is ticking for U.S. and other non-EU fund managers

    Our GSK Update informs about the impact of recent German investment fund legislation (UCITS V Implementation Act) for AIF managers, who are not domiciled in the EU (“non-EU-AIFM”) and who seek to market AIF shares in Germany in accordance with applicable German investment fund law under the EU-AIFM Directive (2011/61/EU).
  • GSK expands Luxembourg presence with a new tax partner

    Opened at the beginning of March 2016, GSK Stockmann + Kollegen continues to expand its Luxembourg office. Mathilde Ostertag recently joined the Luxembourg team of Equity Partners Dr. Marcus Peter, Andreas Heinzmann and Dr. Philipp Mößner as Local Tax Partner.
  • EIA - Strengthening the role of the public

    Among other things, the recent amendment to the Environmental Impact Assessment Act has broadened the rights of (what is termed) the "affected public". The affected public consists primarily of various citizens' initiatives pursuing environmental or public-health purposes. It may for instance file an appeal against a negative decision at the screening stage (i.e., a decision according to which the given project does not require the issuance of an EIA report), and seek its annulment in court. The affected public has been granted a stronger voice also in subsequent procedures in which the fate of a building project is being decided: zoning proceedings and the proceedings on the issuance of a building permit. Taken together, these legislative changes may make it more difficult to implement projects which require an EIA report; in particular, the length of permission proceedings may be substantially extended.
  • New Top Level Domains – Noerr expert warns against trademark infringements

    On June 13, the Internet Corporation for Assigned Names and Numbers (ICANN) published the names of those who have applied for a new top level domain the ending of which may be geographic, such as "munich", industry identification such as "insurance" and even all trademark names and company descriptions such as "canon" and "adidas".
    - Noerr
  • No obligation to set up filtering systems in order to prevent copyright violations

    ECJ, decision of February 16th, 2012, ref. C-360/10 – SABAM
  • Further ECJ Ruling concerning NGO’s right of action under German environmental law

    For the second time within a short period of time, the non-governmental organisations right to challenge administrative decisions under German law is going to be subject to the jurisdiction of the European Court of Justice (ECJ). In January 2012, the German Supreme Administrative Court (Bundesverwaltungsgericht) referred a case to the ECJ for a preliminary ruling concerning the NGO’s right of action.
  • Lessons in Cross-Border M & A Transactions

    The fundamental advice for international business transactions is obvious and easy to understand: different countries have different laws, business habits and cultures. These differences may range from minor nuances, such as lengthy French business lunches or unusual Spanish office hours, to significant legal roadblocks, such as strict European employment laws.
  • Priority rental rights in insolvency

    Parties to rental contracts for commercial premises often agree priority rental rights. In practice, this concept is used to cover a whole series of legal structures. These range from fixed options for the tenant to a promise made by the landlord as a business policy that if any additional premises become available, they will be offered to the tenant. In 2010 the Berlin Court of Appeal issued a ruling on such priority rental rights in insolvency; the decision has recently been published.