Switching fee on loan settlement: District Court of Lübeck confirms the right of the replaced bank to claim fees from the new bank
In a recent appeal case (judgment of the LG Lübeck, Ref. 14 S 69/22), the permissibility of a so-called “switching fee” in the settlement of a real estate consumer loan was examined in detail. The judgment highlights the practical rights and obligations involved in the interbank settlement of loans. In particular, it clarified to what extent the replaced bank is entitled to demand compensation for expenses from the new financing bank in the form of a fee.
Initial situation: Early loan settlement through refinancing
The case at hand concerned the refinancing of a consumer loan initiated by the borrower. The new bank agreed to settle the outstanding debt with the original bank. As a result, the replaced bank demanded a fee for issuing a payment request that included the necessary information for a proper loan settlement. The new bank initially paid the fee amount, but later demanded reimbursement, arguing that it constituted an impermissible fee under civil law prohibitions on charging unreasonable costs in consumer credit law.
Legal framework: Admissibility of internal bank fees
Relevant regulations and their interpretation
The decision of the LG Lübeck is based on the pertinent provisions for real estate consumer loans in the German Civil Code (§§ 488 et seq. BGB) and the requirements of the Payment Services Supervision Act (ZAG). The court did not consider the “switching fee” charged as a violation of the prohibition on unlawful consumer fees.
A key criterion here was the distinction between fees charged directly to the consumer and those directed to the replacing bank. According to the court, the fee does not concern a customer charge, but rather represents compensation for additional administrative work between the participating banks.
Assessment of the specific fee
In the process of loan settlement, the replaced bank regularly undertakes various administrative actions, such as issuing a settlement statement with all loan data relevant on the reporting date. The LG Lübeck considered this service to be an ancillary service which — contrary to the view of the plaintiff bank — is, in principle, separately remunerable between the replaced and the new bank.
The service of the replaced bank includes, among other things, account reconciliation, simultaneous payment processing, and coordination with land registry offices, where required. Accordingly, if such a service is ordered by another credit institution, the replaced bank may charge an appropriate fee for it.
No circumvention of consumer protection regulations
The court rejected the plaintiff bank’s argument that the “switching fee” amounted to circumventing consumer protection provisions to the detriment of consumers. In fact, consumers are not directly affected by this fee and can freely choose to refinance. The financial institution bears the fee independently as the replacing bank and can make independent arrangements regarding its calculation within its own contractual relationship with the client.
Amount of the fee and appropriateness
In the decided case, the court found the amount of the switching fee claimed to be objectively justified and not unreasonable. Key factors include the workload involved and the fact that these administrative tasks lie outside the bank’s regular contract administration.
Significance for banking practice
The judgment provides clarity on the permissible structuring of settlement modalities when changing lenders. Credit institutions may, provided there is no direct charge to the customer side and the compensation is between the banks, charge a separate fee for services provided on instruction. However, banks are advised to introduce transparent settlement processes and to document both the cost disclosure and procedural description explicitly in their exchanges with the replacing bank.
Disclosure practice and contract design
Particular importance is attached to the disclosure of the respective fees to rule out discrepancies between banks in advance. Contract design remains a matter of individual agreement, provided that statutory requirements are met.
Outlook and remarks
The judgment of the LG Lübeck reflects the current legal situation and is consistent with comparable decisions of other courts. However, developments should be regularly monitored, as the banking sector — especially in the area of consumer protection — is subject to significant dynamism.
If there are any uncertainties regarding the interpretation and implementation of settlement modalities or internal fee schedules, or if adjustments are needed in standardized settlement procedures, it is advisable to seek qualified legal advice. MTR Legal Rechtsanwalt provides companies and financial institutions with relevant experience in all matters of banking and capital markets law.
