Definition and Distinction: Crowdlending
Crowdlending, also known as credit-based crowd financing, refers to a form of alternative financing in which individuals or legal entities provide capital via specialized online platforms (so-called crowdlending platforms) as loans to other private individuals or businesses. In contrast to other forms of crowdfunding, crowdlending is designed to recover the loaned capital at the end of the loan period in return for a contractually agreed interest rate.
Distinction from Related Concepts
Crowdlending differs from crowdfunding in the narrower sense (donation-based, reward-based) primarily through its repayment and interest-based structure (debt-based crowdfunding). A distinction must also be made with traditional bank loans and crowdinvesting (equity-based funding).
Legal Framework of Crowdlending in Germany
Statutory Foundations
The legal structuring of crowdlending in Germany is shaped by several legal areas:
- German Civil Code (BGB), in particular §§ 488 ff. governing loan agreements
- Securities Trading Act (WpHG)
- Payment Services Supervision Act (ZAG)
- Banking Act (KWG)
- Investment Act (VermAnlG)
- Trade Regulation Act (GewO)
- General contract law
The legal requirements differ depending on the specific design of the platform and the respective type of loan (consumer loans, business loans, profit-participating loans, etc.).
Licensing Requirements and Supervision
Operating a crowdlending platform may require a license under the Banking Act (KWG), especially if the platform itself grants loans or provides finance-related intermediary services. Many platforms therefore act solely as intermediaries of loan agreements to avoid their own licensing obligations or cooperate with licensed banking partners.
Supervision may also arise under the Payment Services Supervision Act (as a payment institution) or by the Federal Financial Supervisory Authority (BaFin), particularly when conducting payment services or engaging in bank-regulated activities becomes relevant.
Consumer Protection and Disclosure Requirements
Transparency and Disclosure Duties
Crowdlending platforms have significant disclosure obligations, particularly for consumer loans. According to the German Civil Code (§ 491a BGB et seq.) and the Price Indication Regulation, borrowers must be thoroughly informed about interest rates, fees, repayment modalities, and rights of withdrawal. The requirements of the EU Consumer Credit Directive, which have been implemented in Germany, also apply.
Rights of Withdrawal
Consumer loans generally feature a statutory right of withdrawal. Loan agreements can be revoked within 14 days of signing, which poses increased settlement risks for crowdlending platforms in practice.
Data Protection
Processing personal data in loan mediation is subject to the General Data Protection Regulation (GDPR) as well as the German Federal Data Protection Act (BDSG). Loan platforms must implement appropriate measures to protect the data of borrowers and investors, and obtain clear consent for data processing.
Contractual Particularities in Crowdlending
Contractual Parties and Contract Design
Typically, two main contractual relationships exist in crowdlending:
- Loan agreements between investors (lenders) and borrowers (individuals, businesses)
- Intermediation agreements between investors/borrowers and the crowdlending platform
The contractual arrangements can take various forms: from direct contracts between lender and borrower to arrangements using third-party accounts or trust models.
Risks and Liability
A key legal issue concerns the liability of platforms regarding project vetting, default risk, and information. As a rule, investors bear the risk of loss, such as through loan defaults, unless specific liability assumptions or guarantees have been agreed.
Commercial and Tax Treatment
Tax Treatment for Investors
Returns from private loans granted via crowdlending platforms are generally considered investment income (§ 20 EStG) for investors and are therefore subject to capital gains tax. For business loans, additional tax regulations may apply.
Commercial Law Aspects
The commercial operation of crowdlending as a broker requires a license under § 34c GewO if the platform activity constitutes a commercial business. Likewise, commercial lending by investors may, depending on scope and organization, require a business registration.
International Perspective
European Legal Framework
With the EU Regulation on European Crowdfunding Service Providers (ECSP Regulation, Regulation (EU) 2020/1503), a unified legal framework for crowdfunding service providers has been established, applicable within the EU since November 2021. The regulation brings particularly new requirements for licensing, organization, transparency, and consumer protection for providers of cross-border services.
Cross-Border Lending
The specific supervisory situation and regulatory requirements may vary depending on the home state or cross-border activity. The EU regulations aim to harmonize minimum standards within the single market and to enhance legal certainty and investment security.
Summary and Outlook
Crowdlending, as a credit-based form of crowd financing, is a legally complex area subject to ongoing regulatory changes. In addition to the classic areas of loan, consumer protection, and data protection law, cross-border, EU-wide regulations are gaining increasing importance. Crowdlending platforms, borrowers, and investors must continuously adapt to new legal and regulatory developments in order to act lawfully and securely on the market.
Frequently Asked Questions
Is crowdlending regulated in Germany and subject to official supervision?
Legally, crowdlending platforms in Germany are considered financial service institutions when they broker loans or grant loans themselves. They are generally subject to the supervision of the Federal Financial Supervisory Authority (BaFin), if they conduct activities requiring authorization under the Banking Act (KWG), Payment Services Supervision Act (ZAG), or other relevant regulations. Many platforms therefore cooperate with partnering banks to avoid their own licensing requirements. The Investment Act (VermAnlG) may also apply, particularly in projects structured as profit-participating loans or subordinated loans. Depending on business model design, the Small Investor Protection Act (Kleinanlegerschutzgesetz) is also relevant, which provides for disclosure and prospectus requirements. Investors should therefore specifically check whether a BaFin license or an approved prospectus is available for the offered investment.
What legal risks do investors face with crowdlending?
Investors in crowdlending are exposed to specific legal risks: Primarily, there is the default risk that borrowers cannot repay the borrowed capital, potentially resulting in total loss for investors. Unlike with savings deposits, crowdlending is not a regulated financial product with protective mechanisms such as deposit insurance. Enforcing claims against borrowers is often complex, as many platforms provide only limited support services for this. There is also platform risk: if the platform itself faces financial difficulties or insolvency, this can endanger repayment of outstanding loans, especially if there is no insolvency-proof trust structure in place. Finally, note that the legal and tax treatment of interest income and losses must be carefully examined in order to avoid unpleasant surprises.
What contractual relationships arise in crowdlending and what legal frameworks apply?
Crowdlending typically creates several contractual relationships. Between investor and platform, there is an intermediation or management agreement that governs the handling of the investment and management of repayments. The credit relationship exists directly between investor and borrower (as a loan agreement under §§ 488 ff. BGB or as a subordinated/profit-participating loan depending on the model). These contracts are subject to German civil law and may be subject to individual or platform-provided standard conditions. Platforms must comprehensively inform investors about key contractual obligations, risks, costs, and rights of withdrawal and termination. Furthermore, anti-money laundering regulations (Money Laundering Act, GwG) and the General Data Protection Regulation (GDPR) must be observed, particularly in the handling and storage of personal data.
Are there special tax considerations for crowdlending?
Yes, from a tax perspective, interest received from crowdlending must generally be declared as investment income according to § 20 EStG. Platforms usually do not deduct capital gains tax directly, so the investor is responsible for properly declaring these earnings in their own annual tax return. Losses from defaulted loans may be tax-deductible under certain conditions, but the details are complex: Since 2020 (with the Annual Tax Act 2019), losses from capital claims can only be offset against other investment income up to certain limits. Foreign crowdlending platforms should be examined with particular care for tax purposes, as reporting obligations under the Foreign Tax Act (AStG) and possible tax registration duties abroad may apply.
What disclosure requirements do crowdlending platforms owe investors?
According to § 12 VermAnlG and § 32 WpHG, platforms are required to inform potential investors comprehensively about the type, risks, costs, and rights and obligations associated with the investment. In some models, a key component is the so-called asset information sheet (VIB), which must clearly present the essential features and risks of the investment to investors. There may also be prospectus requirements under the VermAnlG or Securities Prospectus Act (WpPG), depending on the structure. Platforms that broker financial investments must also disclose their own license under § 34f GewO and comply with the requirements for advisory and brokerage services. Inadequate or incorrect information can lead to investor compensation claims.
Who is liable for outstanding investments in the event of insolvency of the crowdlending platform?
In the event of the platform’s insolvency, the platform itself is not generally liable for repayments; rather, each borrower remains obligated to make their payments. However, organizational and legal challenges can arise in processing, for example if payments can no longer be forwarded by the platform. It is therefore crucial that platforms have insolvency-proof structures in place, such as trust accounts or the appointment of an independent administrator. If this is not the case, investors risk losing returns from their investments in the event of insolvency or receiving them with delays. Access to documents and information may be blocked by the insolvency estate, further hindering the enforcement of claims.
What role does investor protection play in crowdlending from a legal perspective?
Legal investor protection is currently less developed in crowdlending than in the case of traditional bank products or publicly traded securities. While certain transparency and disclosure obligations apply by virtue of the Investment Act and the Small Investor Protection Act, there is no statutory deposit protection or safeguard against losses. Disputes are generally settled under civil law before the ordinary courts; customary conciliation procedures as used by banks are often absent. BaFin’s supervisory role is often limited to certain disclosure duties and does not cover all business models. Investors are therefore advised to carefully verify the legal integrity of offers and platforms, particularly with regard to legal compliance and the creditworthiness of borrowers.
