Many consumers are struggling when it comes to the topic of debt collection and do not know what late payment or debt collection fees they have to endure if they fall into arrears. The cost of a debt collection service provider or lawyer commissioned by the creditor therefore sometimes hits the defaulting debtor unexpectedly. The German Federal Ministry of Justice and for Consumer Protection recently realised this and thus came up with a solution in September 2019 in the form of a draft law to supposedly tackle this problem.
Click on the link below to access the full text of the draft law:
However, the draft law, which is intended to improve consumer protection in the area of debt collection, among others by way of introducing a notification obligation, does not address one important and in practice very relevant question…
Draft law envisages revision of S. 288 of the German Civil Code (BGB)
The current version of S. 288 BGB forms the basis for the obligation that pre-trial late payment fees which were incurred after the occurrence of a default have to be reimbursed as damages caused by delay. Pre-trial late payment fees can be, on the one hand, the costs incurred when the creditor sends a payment reminder to the debtor itself (in which case, among other things, printing and postage costs have to be reimbursed). On the other hand, they can also include costs for the debt collection or mandating a lawyer. Up to now, the creditor has no obligation to notify the debtor in this regard.
The draft law now proposes an addition to S. 288 para. 4 BGB-E, according to which consumers need to be informed about the legal consequences of a delay in payment. Pursuant to this, any costs incurred by a company in connection with mandating a lawyer or a debt collection agent can only be recovered from a consumer if the creditor informs the debtor about the potential liability to reimburse the creditor for such costs. This information has to be provided in clear and comprehensible text and needs to be easily identifiable as such information. It also needs to be provided in good time before the occurrence of any delay in payment or, if it is provided after any delay in payment has occurred, by setting an appropriate deadline for the payment. The intention is that consumers are informed about any potential economic consequences of non-payment prior to the occurrence of any delay. This much is clear: if the creditor fails to notify the debtor, they do not have any right to reclaim costs incurred in connection with the debt collection.
The appropriateness of this measure is (naturally) evaluated differently by the various affected associations. For example, the German Federal Law Society (Bundesrechtsanwaltskammer) believes the notification obligation to be one-sided and disproportionate as it provides preferential treatment to debtors acting contrary to the law. For the associations’ Working Group Debt Advisory on the other hand, the proposal contained in the draft law does not go far enough. They want to see the obligation fall upon the creditors themselves with regards to sending out at least one payment reminder to consumers with a notification about the imminent debt collection as well as the costs associated therewith.
Uncertainties contained in the draft law
The majority believes one issue, however, is still unclear in the draft law. And that is how the notification obligation under S. 288 BGB-E can be fulfilled. Pursuant to the explanations to the draft law, the notification can be provided in the form of boilerplate text being included in the contractual documentation, any pre-contractual information material or on the invoice. It follows that a notification contained in the general business terms would be permitted. However, S. 288 para. 4 BGB-E explicitly requires that the notification must be “easily identifiable”. What exactly this requirement entails remains unclear. If the intention is to require the notification obligation to be clearly set apart from the rest of the text, as is the case for the information required regarding revocations, it would not be sufficient to simply include the notification in the general business terms. In light of the fact that a few associations have already pointed out the uncertainty regarding this issue, it remains to be seen whether clarity will be provided in this regard and what exactly this will look like.
Cover picture: Copyright © Adobe Stock / Zerbor