Introduction to the Financial Services Legislation in Germany
(By Verbraucher - Zentrale Hamburg e.V.)

§ 488 Standard obligations in the case of a loan contract

(1) By a loan contract the lender is bound to place at the disposal of the borrower a sum of money of the agreed amount. The borrower is bound to pay the interest owed and, at the due date, to repay the loan placed at his disposal.
(2) Save where otherwise provided, the agreed interest is to be paid at the end of each year and, if the loan is to be repaid before the end of a year, upon repayment.
(3) If a period of time is not specified for repayment of the loan, the due date thereof depends on the lender or the borrower giving notice. The notice period is three months. If interest is not owed, the borrower is entitled to repay also without giving notice.
§ 489 Borrower’s ordinary right of termination
(1) The borrower may, by giving notice, terminate the whole or a part of a loan contract for which a fixed rate of interest has been agreed for a specific period,
1. if the stipulated fixed interest rate ends before the time specified for repayment and no new agreement concerning the interest rate has been reached, by giving at least one month’s notice expiring at the earliest on the day on which the stipulated fixed interest rate ends; if adjustment of the interest rate at specified periods of up to one year has been agreed, the borrower may only give notice expiring on the expiry of the day on which the stipulated fixed interest rate ends;
2. if the loan is made to a consumer and is not secured by a mortgage or ship’s mortgage, after the expiry of six months after its receipt in full and provided he gives three months’ notice;
3. in any event ten years after its receipt in full and provided that six months’ notice is given; if, after receipt of the loan, a new agreement is made concerning the time for repayment or the interest rate, the time agreed in the new agreement is substituted for the time of payment.
(2) The borrower may terminate a loan agreement with a variable rate of interest at any time by giving three months’ notice of termination.
(3) Termination by the borrower under subsections (1) or (2) is of no effect if the sum owed is not repaid within two weeks after the notice of termination becomes effective.
(4) The borrower’s right of termination under subsections (1) and (2) above cannot be excluded or rendered more difficult by contract. This does not apply to loans to the federal government, a special fund of the federal state, a Land, a municipality, an association of municipalities, the European Communities or foreign regional or local authorities.

§ 490 Extraordinary right of termination

(1) If there is a material deterioration in the economic circumstances of the borrower or in the value of a security provided for the loan or a risk of such deterioration as a result of which the repayment of the loan is endangered even if the security is realised, the lender may, in case of doubt, terminate the loan agreement on immediate notice in any event before the loan is paid out to the borrower; once the loan has been paid out, this right exists only as a rule.
(2) If his legitimate interests so require, a loan contract in which a fixed rate of interest has been agreed for a specific period and in which the loan is secured by a mortgage of land or ship’s mortgage may be terminated early by the borrower provided that he observes the notice periods in § 489 (1), No 2. Such an interest exists in particular where the borrower needs to use elsewhere the thing on which the loan is secured. The borrower must compensate the lender for the loss which he incurs as a result of this early termination (compensation for early termination).
(3) The provisions of §§ 313 and 314 are unaffected.

§ 491 Consumer loan contract

(1) Subject to subsections (2) and (3) below, the following supplementary provisions also apply to loan contracts made for remuneration between a businessperson and a consumer as borrower (consumer loan contract).
(2) The following provisions do not apply to loan agreements
1. in which the loan to be paid out (net loan amount) does not exceed Euro 200;
2. which an employer concludes with his employee at an interest rate below the normal market rate;
3. which are concluded in the framework of the promotion of housing and urban development on the basis of decisions governed by public law or on the basis of allocations made from public budgets made directly between the fund providing institution governed by public law and the borrower at rates of interest below the normal market rate.

(3) Nor do the following provisions apply:

1. §§ 358, 359, § 492 (1), sentence 5, No 2, § 495, § 497 (2) and (3), and § 498 to consumer loan contracts in which the grant of the loan is made dependent on the grant of security by way of mortgage of immovable property, or in which no such mortgage has been stipulated in view of § 7 (3) to (5) of the Home Savings Bank Act, and on terms which are normal for loans secured by mortgage and their interim financing;
2. § 358 (2), (4) and (5) and §§ 492 to 495 to consumer loan contracts which are included in a court protocol drawn up in accordance with the Code of Civil Procedure or authenticated by a notary, if the protocol or the authentication sets out the annual interest rate, the charges in connection payable upon conclusion of the contract and the conditions under which the annual interest rate or the charges may be altered;
3. § 358 (2), (4) and (5), and § 359 to consumer loan contracts intended to finance the acquisition of securities, foreign currencies, derivatives or precious metals.

§ 492 Written form, content of the contract

(1) Save where stricter requirements as to form are laid down, consumer loan contracts must be concluded in writing. The contract may not be concluded in electronic form. The requirement for the contract to be in writing is satisfied if the offer and the acceptance are each declared separately in writing. The lender’s declaration does not have to be signed if it is prepared with the aid of automatic equipment. The contract declaration which must be signed by the borrower must indicate
1. the net loan amount, or the upper limit of the loan, as the case may be;
2. the total amount of all instalments to be made by the borrower in order to repay the loan and to pay interest and other charges, if at the time of conclusion of the consumer loan contract the total amount is known for the total period of the loan. In the case of loans subject to variable conditions which are repaid in instalments, a total amount based on the conditions applicable upon conclusion of the contract must be indicated. The total amount does not have to be indicated in the case of loans for which the borrower is authorised to borrow up to a maximum amount;
3. the method of repayment of the loan or, if no provisions are agreed in that respect, the rules for bringing the contract to an end;
4. the interest rate and all other charges applicable to the loan, which, in so far as their amount is known, must be set out individually and otherwise the reason for them indicated, together with any arrangement costs to be born by the borrower;
5. the annual percentage rate of charge or if provision is made for an alteration to the interest rate or other price determining factors, the initial annual percentage rate of charge; in the same context as the annual percentage rate of charge, there must also be an indication of the conditions under which price determining factors may be altered and of the period over which charges resulting from payment of less than the full loan to the borrower or from an additional loan amount are taken into account when the annual percentage rate of charge is calculated;
6. the costs of insuring the outstanding balance of the loan or of other insurance concluded in connection with the loan contract;
7. security to be provided.
(2) The annual percentage rate of charge is the total charge per annum expressed as a percentage of the net loan amount. The annual percentage rate of charge and the initial annual percentage rate of charge are determined in accordance with § 6 of the Price Indication Regulation.
(3) The lender must provide the borrower with a copy of the contract declarations.
(4) Subsections (1) and (2) also apply to an authority granted by a borrower to conclude a consumer loan contract. Sentence 1 does not apply to an authority to carry on a lawsuit or to an authority authenticated by a notary.

§ 493 Credit by way of overdraft

(1) The provisions of § 492 do not apply to consumer loan contracts in which the credit institution grants the borrower the right to overdraw his current account by a particular amount, if, apart from interest for the loan taken up, no other charges are made and the interest is not charged in periods of less than three months. The credit institution must inform the borrower, before he takes up such a loan, of
1. the maximum amount of the loan;
2. the annual rate of interest then applicable;
3. the conditions under which the rate of interest may be altered;
4. how the contract may be terminated.
The contract conditions referred to in sentence 2, Nos 1 to 4, must be confirmed in writing to the borrower at the latest after the borrower has taken up the loan for the first time. During the period in which he has taken up the loan the borrower must also be informed of any alteration in the annual rate of interest. The confirmation under sentence 3 and the notice under sentence 4 may also be in textual form; it suffices if they are indicated on a bank statement.
(2) If the credit institution permits a current account to be overdrawn and the account is overdrawn for more than three months, the credit institution must inform the borrower of the annual rate of interest, the charges and any alterations in that regard; this may be in the form of a notice on a bank statement.
§ 494 Legal consequences of formal defects
(1) The consumer loan contract and the authority granted by the consumer to conclude such a contract are void if the requirement for writing is not complied with as such or if any of the information laid down in § 492 (1), sentence 5, Nos 1 to 6, is not provided.
(2) Irrespective of any defect under subsection (1) above, the consumer loan contract becomes valid to the extent that the borrower receives the loan or has recourse to it. However, the rate of interest applicable to the loan contract (§ 492 (1), sentence 5, No 4) is reduced to the statutory interest rate if that rate of charge or the annual percentage rate of charge or the initial annual percentage rate of charge (§ 492 (1), sentence 5, No 5) or the total amount (§ 492 (1), sentence 5, No 2) is not indicated. The borrower does not owe any charges not indicated. Agreed instalments must be recalculated by reference to the reduced interest rate or charges. If there is no indication of conditions under which the price determining factors may be altered, they may not be altered to the detriment of the borrower. If there is no indication regarding securities, they may not be demanded; this does not apply if the net loan amount exceeds Euro 50 000.
(3) If the annual percentage rate of charge or the initial annual percentage rate of charge is indicated at a rate lower than the actually stipulated rate, the interest rate applicable to the consumer loan contract is reduced by the percentage amount by which the indicated annual percentage rate of charge or the initial annual percentage rate of charge is lower than the actually stipulated rate.

§ 495 Right of revocation

(1) In the case of a consumer loan contract the borrower has a right of revocation in accordance with § 355.
(2) If the borrower has received the loan, he is deemed not to have revoked if he does not repay the loan within two weeks after declaration of revocation or after the loan has been paid out. This does not apply in the case of § 358 (2). The necessary notification of the right of revocation must refer to the legal consequence under sentence 1.
(3) Subsections (1) and (2) do not apply to the consumer loan contracts referred to in § 493 (1), sentence 1, if, under the contract, the borrower may repay the loan at any time without observing a notice period and without additional charges.

§ 496 Waiver of defences, prohibition of bills of exchange and cheques

(1) An agreement by which the borrower waives his right pursuant to § 404 to raise against an assignee of the debt defences which he has against the lender, or his right pursuant to § 406 to set off also against the assignee of the debt a claim which he has against the lender, is invalid.
(2) The borrower must not be required to incur an obligation under a bill of exchange in respect of the lender’s claims arising out of the consumer loan contract. The lender may not accept a cheque from the borrower in order to secure his claims arising under the consumer loan contract. The borrower may at any time demand that the lender surrender a bill of exchange or cheque that has been issued in breach of sentence 1 or 2 above. The lender is liable for any loss which the borrower incurs as a result of the issue of such a bill of exchange or cheque.

§ 497 Treatment of default interest, credit for partial performance

(1) If the borrower is in default in making payments which he owes under the consumer loan contract, he must pay interest on the amount owed in accordance with § 288 (1), unless it is a consumer loan contract secured by a mortgage of land in accordance with § 491 (3), No 1. In the case of the latter contracts the default interest rate per annum is 2.5% above the basic interest rate. In individual cases the lender may prove that the loss was greater or the borrower may prove that the loss was less.
(2) Interest that accrues after default occurs is to be entered in a separate account and may not be included in a current account with the amount owed or with other claims of the lender. § 289, sentence 2, applies to that interest, except that the lender may demand compensation only up to the amount of the statutory interest rate (§ 246).
(3) Payments by the borrower which are insufficient to repay the entire debt due are to be set, in derogation from § 367 (1), first, against legal costs, then against the remainder of the amount owed (subsection (1)) and lastly against interest (subsection (2)). The lender may not refuse part payments. Limitation of the claims for repayment of the loan and interest is suspended from the date of default until they are established in a manner referred to in § 197 (1), Nos 3 to 5, but not for more than ten years from the date on which they arose. § 197 (2) does not apply to claims for interest. Sentences 1 to 4 do not apply in so far as payments are made in response to an instrument authorising execution which primarily relates to a claim for interest.

§ 498 Repayment of the entire loan in the case of loans repayable in instalments

(1) In the case of a loan repayable in instalments, the lender may give notice to terminate the consumer loan contract on account of default in payment by the borrower only if
1. the borrower is in default in paying at least two successive instalments in whole or in part and at least 10% or, in the case of a loan contract period exceeding three years, 5% of the nominal amount of the loan or of the instalment purchase price, and
2. the lender has, to no avail, fixed a period of two weeks within which to pay the sum in arrears and declared that if payment is not made within that period he will demand the whole of the debt outstanding. At the latest when he fixes that period, the lender is to offer to the borrower an opportunity to discuss the possibility of an agreed solution.
(2) If the lender terminates the consumer loan contract, the outstanding amount is reduced by the interest and ther charges dependent on the term of the loan which, on a graduated calculation, are attributable to the period after the termination becomes effective.

Untertitel 2: Finanzierungshilfen zwischen einem Unternehmer und einem Verbraucher
Sub-title 2: Financial accommodation granted by a businessperson to a consumer

§ 499 Extension of time for payment, other financial accommodation

(1) Without prejudice to subsections (2) and (3), the provisions of §§ 358, 359, and 492 (1) to (3) and §§ 494 to 498 apply mutatis mutandis to contracts by which a businessperson grants a consumer, against remuneration, an extension of time for repayment exceeding three months or grants him other remunerated financial accommodation.
(2) Without prejudice to subsection (3), the special provisions laid down in §§ 500 to 504 apply to finance leasing contracts and contracts for the supply of a specific thing or the provision of a specified other performance in return for instalment payments (instalment payment transactions).
(3) The provisions of this sub-title do not apply to the extent laid down in § 491 (2) and (3). In the case of an instalment payment transaction, the cash payment price replaces the net loan amount referred to in § 491 (2), No 1.
§ 500 Finance leasing contracts
Only the provisions of §§ 358, 359, 492 (1), sentences 1 to 4, § 492 (2) and (3) and § 495 (1) and §§ 496 to 498 apply mutatis mutandis to finance leasing contracts between a businessperson and a consumer.
§ 501 Instalment payment transactions
Only the provisions of §§ 358, 359, 492 (1), sentences 1 to 4, § 492 (2) and (3) and § 495 (1) and §§ 496 to 498 apply mutatis mutandis to instalment payment transactions between a businessperson and a consumer. Otherwise the following provisions apply.
§ 502 Information required, legal consequences of formal defects in the case of instalment payment transactions
(1) In the case of instalment payment transactions, the contractual declaration to be signed by the consumer must indicate
1. the cash price;
2. the instalment payment price (total amount of the deposit and all instalments to be made by the consumer, including interest and other charges);
3. the amount, number and due date of each instalment payment;
4. the annual percentage rate of charge;
5. the cost of insurance which is concluded in connection with the instalment payment transaction;
6. the stipulation of a reservation of title or other security to be given.
The indication of the cash price and of the annual percentage rate of charge is unnecessary if the businessperson supplies the goods or other performance only upon instalment payment terms.
(2) The requirements of subsection (1), of § 492 (1), sentence 1 to 4, and of § 492 (3) do not apply to instalment payment transactions in distance contracts if the information in subsection (1), sentence 1 Nos 1 to 5, other than the amount of each instalment, are provided to the consumer in textual form by such a time that he is able to obtain thorough knowledge of the information before the contract is concluded.
(3) The instalment payment transaction is void if the requirement for writing in § 492 (1), sentences 1 to 4, is not complied with or if one of the indications required by subsection (1), sentence 1, Nos 1 to 5, is missing. Notwithstanding a defect under sentence 1, the instalment payment transaction becomes valid if the thing is handed over to the consumer or the performance made to him. However, if the instalment payment price or the annual percentage rate of charge is not indicated, the maximum rate of interest on the cash price is the statutory rate of interest. If a cash price is not indicated, the market price is deemed to be the cash price in case of doubt. The provision of security cannot be required if no indication has been given in that regard. If the indicated annual percentage rate of charge or initial annual percentage rate of charge is indicated as lower than the actually stipulated rate, the instalment payment price is reduced by the percentage amount by which the indicated annual percentage rate of charge or the initial annual percentage rate of charge is lower than the actually stipulated rate.

§ 503 Right of return, termination of instalment payment transactions

(1) The consumer may be given a right of return under § 356 instead of the right of revocation to which he entitled under § 495 (1).
(2) The businessperson may terminate an instalment payment transaction on account of a default in payment by the consumer only subject to the requirements set out in § 498 (1). The consumer must compensate the businessperson also for the expenditure incurred under the contract. When calculating compensation for the benefits of a thing to be returned, account must be taken of the reduction in value that has since occurred. If the businessperson takes back the thing delivered under the instalment payment transaction, that is deemed to be the exercise of the right of termination, unless the businessperson agrees with the consumer to compensate the latter for the usual sales value of the thing at the time it is taken away. Sentence 4 applies mutatis mutandis if a contract for the supply of a thing is linked with a consumer loan contract (§ 358 (2)) and if the lender takes over the thing; in the event of termination, the legal relationship between the lender and the consumer is determined in accordance with sentences 2 and 3.
§ 504 Early payment in instalment payment transactions
If the consumer performs his obligations under an instalment payment transaction before the due date, the instalment payment price is reduced by the interest and other term-dependent charges which, applying a graduated calculation, fall due in the period after the date of early performance. If, by virtue of § 502 (1), sentence 2, a cash price does not have to be indicated, the statutory interest rate (§ 246) is applied. However, the businessperson may demand interest and other term-dependent charges in respect of the first nine months of the term originally provided for, even if the consumer performs his obligations before the end of that period.

Untertitel 3: Ratenlieferungsverträge zwischen einem Unternehmer und einem Verbraucher
Sub-title 3: Instalment supply contracts between a businessperson and a consumer

§ 505 Instalment supply contracts

(1) Subject to sentence 2, in contracts with a businessperson in which the declarations of intention are directed at the conclusion of a contract which
1. concerns the supply in instalments of several things sold as things which are connected with each other and in which the remuneration for the whole of the things is payable in instalments, or
2. concerns the regular supply of things of the same kind, or
3. concerns an obligation to acquire or obtain things on a recurring basis,
the consumer has a right of revocation in accordance with § 355. This does not apply to the extent determined by § 491 (2) and (3). The net loan amount referred to in § 491 (2), No 1, corresponds to the sum of all instalments to be paid by the consumer up to the earliest possible date for termination by notice.
(2) An instalment supply contract under subsection (1) must be in writing. Sentence 1 does not apply if the customer is given an opportunity to retrieve and save in reproducible form the conditions of the contract including standard business terms incorporated in it upon conclusion of the contract. The businessperson must supply the contract to the consumer in textual form.

Untertitel 4: Unabdingbarkeit, Anwendung auf Existenzgründer
Sub-title 4: No contrary agreements, application to start-up businesses

§ 506 Contrary agreements

No agreement derogating from the provisions of § 491 to 505 may be made to the detriment of the consumer. These provisions apply even if they are circumvented by other arrangements.
§ 507 Application to small businesses
§§ 491 to 506 also apply to natural persons to whom a loan, extension of time for payment or other financial accommodation is granted for the taking up of a trade or self-employed professional activity or who conclude an instalment supply contract for that purpose, unless the net loan amount or the cash price exceeds Euro 50 000.
§§ 507-515 (entfallen)
§§ 507 – 515 (repealed)
The Act makes minor amendments to §§ 523, 536, 536a, 543, 548, 563, 604.