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ARTICLE · 30 AUGUST 2017

New Case Law On Upfront Fees In German Loan Agreements

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On 4 July 2017, the German Federal Court of Justice (BGH)—in two separate cases—held that pre-formulated agreements on work fees that are payable independent from the term of the underlying loan...

GermanyFinance and Banking
A&O Shearman
A&O Shearman
Winfried Carli
Winfried Carli
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On 4 July 2017, the German Federal Court of Justice (BGH)—in two separate cases—held that pre-formulated agreements on work fees that are payable independent from the term of the underlying loan and agreed between a financial institution and an entrepreneur (Unternehmer) are invalid.

The Court Ruling

In both cases, the loan agreements contained boilerplate language based on which the borrower owed a work fee ("Bearbeitungsgebühr," "Bearbeitungsentgelt"), which was payable in full independent from the actual term of the respective loan (laufzeitunabhängig), i.e. the work fee was not (pro rata temporis) repayable if the loan was terminated or partially prepaid prior to its maturity. The plaintiffs requested and were awarded repayment of such fees pursuant to section 812 para. 1 sentence 1 of the German Civil Code (BGB).

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