Payment systems in Germany
(By Verbraucher - Zentrale Hamburg e.V.)

Means of payment and financial services at distances:
For a complete regulation of new technologies for consumers and problems of security and fraud

I. Introduction

In Germany distance marketing has a rather long tradition. Especially distance selling of goods, typically offered via a catalogue and ordered by mail or call has been practised for decades. And since the latest technological development as well as social establishment of computer based networks, especially the world wide web, made access to (electronic ”soft copy”) catalogues much easier, consumers are less and less contacting suppliers face to face. Marketing of financial services basically follows the same development. But it is important to note that the means of electronic (tele-) communication in the field of financial services at a whole are even more important. This becomes clear because of basically two reasons. First of all, suppliers of financial services - unlike those dealing within the distance sale of goods branch - don’t have to solve the logistic problem of delivery. Performance of financial services, e.g. credits or insurances, is, often a pure matter of communication. Secondly, realisation of cashless payment as a special category of financial services at distance is a factor of crucial importance in distance marketing in general. No business, might it deal with the sale of goods or any kind of distance service at, can be successfully launched on the market as long as there is a necessity for cash payment. In the following overview it will be described, how the named circumstances have been taken into consideration by German law (II.). With special regard to financial services at distance, it shall be pointed out that a further development of distance marketing is hindered primarily by problems which occur in the field of cashless payment of goods and services (III.).

II. Distance Marketing Law in Germany

From the perspective of the German market, especially with respect to the expectable electronic market, the described development is in fact still in its ”start-up” phase. While a certain group, one might even say ”class” of consumers has already entered the electronic market rather enthusiastically, a considerable number of consumers still distrusts its offers. However, the European legislator tried to prevent this by issuing a number of directives. In this context the directives concerning distance contracts (1997/7/EC), electronic signatures (1999/93/EC), electronic commerce (2000/31/EC) and most recently on financial services at distances (2002/65/EC) have to be named in the first place. Distance Marketing Law in Germany is based almost exclusively on those directives. And in spite of its rather recent subject matter, it already went through a considerable number of changes.

1. ”Informations- und Kommunikationsdienstegesetz”
By enacting the “Informations- und Kommunikationsdienstegesetz” (IuKDG) a number of acts for the electronic market have already been enacted in 1997 - thus probably in expectance, but still before the issuing of the named directives. Those acts, which had to be adjusted to the European law shortly after they had been enacted already, were supposed to solve basically two problems. Firstly, the “Teledienstegesetz” (Art. 1 IuKDG) was meant to clarify that companies on the electronic market should principally be liable just for their own offers, while liability concerning offers those companies are just mediating a contact to, comes into consideration only exceptionally. Secondly, requirements of different forms of electronic signature were to be determined by the “Signaturgesetz” (Art. 3 IuKG). The named provisions in the “Teledienstegesetz” are practically of an importance which can hardly be overestimated, but as there is still a controversial discussion about the extent of a company’s liability on the electronic market, it looks like they missed their goal. An intensive discussion is also going on about means and legal effects of the electronic signature. Practically, on the other hand, the electronic signature is hardly used on the German market at all - although German Law in the meantime allows the use of electronic(ally signed) instead of handwritten or printed documents in almost any case. On the basis of §§ 126/3, 126 of the German Civil Code (Bürgerliches Gesetzbuch - BGB), for example a contract which has to be made in written form can be substituted by an electronically signed document. And § 292a of the German ”Zivilprozessordnung” (ZPO) – to name an important stipulation from the field of procedural law – allows the use of electronically signed documents as an evidence.

2. General Provisions about Distance Marketing in German Law
By enacting the ”Fernabsatzgesetz” in the year 2000 for the first time provisions for the electronic market have been determined which were designed to raise the level of consumer protection. Taking a look at it as a whole, it is remarkable that the German legislator has been following the European directive concerning distance contracts rather strictly – not only from a conceptual point of view, but also with regard to the concrete wording. Thereby a relatively detailed, in many parts literal identical to the directive, but also hardly transparent act has been created that had to be changed because of editorial mistakes a couple of times already. In the meantime, the “Fernabsatzgesetz” has been abrogated as a whole and its provisions have been incorporated in the German Civil Code (Bürgerliches Gesetzbuch - BGB) as part of general contract law.
In § 312b BGB first of all a stipulation can be found, which describes the scope by defining the term “Fernabsatzvertrag” (distance marketing contract) for the purpose of the following provisions. Then, in § 312c BGB those companies practising distance marketing are obliged to give certain information to their (future) customers. The concrete content of this information, however, has been determined by a special (non-formal) act, the so called BGB-Informations-Verordnung (BGB-Info-VO), which lists a considerably detailed number of facts concerning the company and the marketed product. The content of this catalogue is extended for those companies offering their products on the electronic market (see § 312e BGB). The most important provision from the consumers’ point of view is § 312d BGB, which provides that a contract which has been made between a consumer and a company under such conditions principally can be withdrawn within a certain period of time.
The lack of transparency, which has been mentioned already, is primarily caused by the fact, that any of the named provisions also consists of a remarkable number of exceptions. In spite of a rather detailed wording, those exceptions often remain unclear and sometimes it is hardly possible to figure out the reason of rule and exception. Thus, distance marketing law does not apply at all to those businesses listed in § 312b/3 BGB. Even if distance marketing law generally applies, the duty to provide information sometimes applies only to a limited extent. And finally, the consumer’s right of withdrawal is in many cases either excluded to begin with (§ 312d/4 BGB), or expires before the generally given period of time has elapsed (§ 312d/3 BGB) - sometimes apparently so fast, that referring to the BGB-Info-VO necessary information about its existence seems utterly absurd (vgl. Härting, Computer und Recht 2003, S. 204ff).

3. Bestimmungen zum Fernabsatz von Finanzdienstleistungen
Distance marketing law - except for the special provisions in § 312e BGB - does not apply to the marketing of financial services, yet (see § 312b/3 Nr.3 BGB). However, to follow the corresponding European directive, the provisions about distance marketing in Germany are about to be modified again. Referring to a recently published sketch for a corresponding act, by October 2004 the field of financial services shall no longer be excluded from the general scope of distance marketing law (§ 312b BGB). Furthermore, following the European directive, the said BGB-Info-VO shall be adjusted to the consumers’ special needs of information in the area of financial services.
Hence, consumer protection in financial services at distances from a conceptual point of view (provision of information and right to revoke a contract) principally does not differ from the general provisions. Nevertheless, in comparison to the general provisions regarding the suppliers’ duty to provide their future customers with certain information, a higher level of protection shall be reached. Referring to the planned new wording of § 312c BGB, it shall not only be provided that consumers acknowledge the said information before making use of financial services offered at distances. Suppliers of financial services (will) also have to grant adequate information in a so-called “Textform” already at this point, while on the basis of the general rules this still can be done as an confirming act after the contract has been made. This distinction can be found in the European directive concerning distance contracts and the directive concerning financial services at distances, too. Only instead of “Textform” in any of the directives the expression ”durable medium” (i.e. “dauerhafter Datenträger”) is used and therefore it is questionable whether German law is conform to European law.
It is obvious, that the European as well as the German legislator had problems when wording the named duty. In fact, the expression ”dauerhafter Datenträger” had also been used in the German Fernabsatzgesetz. The actual term has been introduced in the beginning of the year 2002, after substantial doubts concerning the practical requirements of a durable medium had arisen especially on the electronic market. In particular it was a matter of discussion whether the publishing of information on a supplier’s website was sufficient (see e.g. OLG München v. 25.1.01 - 29 U 4113/00 [Neue Juristische Wochenschrift 2001, S. 2263f.; Computer und Recht 2001, S. 401ff., comm. by Mankowski]). Within the reasoning to the new law (using the term ”Textform”) the legislator expressively negated this question, but on the other hand was not able to clarify this point of view by the wording of the law itself. The term “Textform” itself as well as its definition’s wording in § 126 BGB (“in einer ... zur dauerhaften Wiedergabe in Schriftzeichen geeigneten Weise”) still seem to hold distance marketing information in the disputed way sufficient. However, since the European directive concerning financial services at distances defines the term ”durable medium” for the first time, this standpoint no longer holds water. In Art. 2f of the named directive it becomes clear that a supplier’s special duty to grant information to their customers on a durable medium does not make sense unless it is provided that its content cannot be changed afterwards. As an increasing importance of this duty can be expected on the market of financial services, it seems recommendable to point this out in the German law, too.

III. Problems in the field of cashless (electronic) payment

To sum up, what has been said so far, it can be concluded that in the filed of distance marketing a special need of consumer protection is recognised primarily in the area of contract closing. Reliable information about companies and the subject matter of contracts they are offering shall be accessible on the electronic market, too, and consumers shall not be bound to contracts entirely. On the other hand – as mentioned in the beginning - especially in the field of financial services new media are not only used for the closing of a contract, but also play a substantial role when it comes to its performance. This area is widely non-regulated. And that is a pity especially with regard to the means of electronic payment, which are of crucial importance for the electronic market in general. In this area of financial services the most problematic part from the customers’ point of view is not the closing of a contract, which enables them to make use of a certain payment infrastructure. Problems are mainly caused by its performance, i.e. payment, which is usually realised by a medium, which is hardly ever under the customers’ unrestricted control. In the following it will be shown, that especially in this field a regulation for the purpose of a definition of risk spheres on the long run is inevitable.

1. Payment by card
The European legislator has taken the named problem into consideration with regard to so-called payment cards at least. Both of the directives concerning distance marketing determine that the member states have to provide that consumers in case of a fraudulent use of their card may ask for a refunding. § 676h BGB which has been enacted in Germany for that purpose at first sight seems to provide even more than that. In this provision it is determined that a charge is not allowed, unless the supplier gives evidence, that the card has been used by the customer. Thus – apparently different from the requirements of the directives - the customer does not have prove, that the card has been used by a third (criminal) person. On the other hand it is widely accepted that a customer has to pay damages, as long as fraudulent use of his card was possible only because of his (gross) negligence. It is a matter of a controversial discussion in which cases a customer (holder of a card) may be held liable in this context. However, German courts rather tend to accuse customers. Many courts argue, e.g. that principally the registered use of a payment cards PIN sufficiently indicates the customers negligence, as otherwise a third person might take notice of the particular PIN only with unreasonable efforts (see also: OLG Hamm, Zeitschrift für Wirtschaftsrecht 1997, S. 878ff.). Therefore, it can be summed up, that the concept of consumer protection which is used in § 676h BGB does not work in many cases. Correspondingly consumers are using payment cards especially on the electronic market rather not.

2. Value Added Network Services
Many suppliers on the electronic market have reacted to the just mentioned reservation by offering their services as so-called value added network services. In those cases customers are not straightly paying to the supplier but to a carrier of telecommunication services, who previously mediated a contact between customer and supplier and is able to bill the supplier’s service on the basis of the communication data. Nevertheless, within the statistics of consumers’ complains value added network services are on a top range and are a matter of a controversial academic as well as political discussion. This is because experience has shown, that value added network services are often charged - sometimes to the amount of several thousands of Euros – altough the consumers in fact have not been provided with an adequate service. Via the Internet it is even possible to cause a billing to the detriment of the consumer by simulating a network based contact, which in fact never took place (so-called “dialer problem”; see most recently: Bundesgerichtshof v. 04.03.04 – III ZR 96/03). How cases like these have to be solved is still unclear, even after several acts tried to prevent continuing fraud. However, if we – corresponding to the phone companies’ point of view - assume that consumers are obliged to pay in any case, we have to face that in this way a medium will be established, which can be functionally compared to a payment card, but is much more easy to abuse, while the fragmentary protection of consumers in § 676h does not even apply (see also Fluhme, Computer und Recht 2003, S. 103ff.).