Bank Loses Claim to Prepayment Penalty After BGH Ruling – Case No.: XI ZR 75/23
If a loan is repaid early, banks and savings banks may claim a prepayment penalty as compensation for lost interest. However, they lose this claim if the clause governing the calculation of the prepayment penalty is not “clear and understandable” for the borrower. The Federal Court of Justice (BGH) made this clear in its ruling of December 3, 2024 (Case No.: XI ZR 75/23). This decision opens up opportunities for many consumers to reclaim prepayment penalties already paid to banks.
When a borrower repays a loan early, the bank loses the interest it had planned on receiving based on the contractually agreed fixed interest rate. To compensate for this, the bank can demand a prepayment penalty. However, under Section 502 (2) of the German Civil Code (BGB), the bank loses its entitlement to a prepayment penalty if it fails to sufficiently inform the borrower about the contract duration, termination rights, or the calculation of the prepayment penalty. This was emphasized by the commercial law firm MTR Legal Rechtsanwälte, which advises on banking law, among other areas.
Early Repayment of Real Estate Loans
Banks and savings banks have repeatedly made errors that allow borrowers to avoid paying a prepayment penalty or to reclaim one they have already paid.
The case before the BGH concerned a clause used to calculate the prepayment penalty, which is particularly common in loan agreements from Volksbanken and other cooperative banks.
The plaintiff had taken out two real estate loans with the bank and repaid them early. The bank demanded the contractually agreed prepayment penalty. Under section 8 of the loan agreement, the calculation method stated that the bank’s interest loss was determined by the difference between the contractual interest rate and the yield on mortgage bonds with a term equivalent to the remaining duration of the repaid loan.
Successful Lawsuit for Repayment
The plaintiff initially paid the prepayment penalty under reservation and later demanded a refund from the bank. The Higher Regional Court (OLG) of Zweibrücken ruled in his favor. The court determined that the plaintiff had a right to reclaim the prepayment penalty, as the bank’s calculation method was inadequately explained, causing it to lose its claim to the penalty.
The Federal Court of Justice confirmed this ruling on appeal. The BGH clarified that, in a real estate financing agreement, consumers must be clearly and understandably informed about the conditions and calculation method for the bank’s claim to a prepayment penalty. Since these conditions were not met and the bank’s explanation of the calculation method was insufficient, the bank had no claim to a prepayment penalty under Section 502 (2) No. 2 BGB.
BGH: Calculation Clause for Prepayment Penalty Inadequate
The BGH further ruled that the clause referring to the bank’s interest loss calculation based on the “remaining duration of the repaid loan” was inadequate. According to established case law, compensation for interest losses is only justified for the period of legally protected interest expectations. Such an expectation exists only until the agreed due date of the repayment claim, the next possible termination date, or the end of the agreed fixed-interest period.
A real estate loan can typically be terminated for the first time ten years after full disbursement, with six months’ notice. However, consumers interpret the “remaining duration of the repaid loan” as the full remaining term of the loan, rather than just the period covered by legally protected interest expectations.
This misunderstanding leads consumers to believe that the bank’s interest loss is calculated based on a much longer contractual term. Naturally, this impacts the amount of the prepayment penalty and could discourage consumers from exercising their right to early repayment. Since the clause used by the bank was inadequate, the plaintiff was entitled to reclaim the prepayment penalty, as confirmed by the BGH.
Reclaiming Prepayment Penalties
In real estate loans, prepayment penalties can quickly reach five-figure sums. The landmark BGH ruling enables consumers to avoid paying prepayment penalties or reclaim them from banks.
MTR Legal Rechtsanwälte provides legal advice on prepayment penalties and other banking law matters.
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