German consumer association did not have standing to take declaratory model action

German consumer protection association the Schutzgemeinschaft für Bankkunden e.V. had filed a declaratory model action, a German form of collective redress, against the bank of a car manufacturer. The German Federal Court of Justice (Bundesgerichtshof/BGH) ruled that the association lacked standing and that the action was inadmissible.

The case was about the financing of car purchase agreements. The Schutzgemeinschaft für Bankkunden e.V. wanted customers of Mercedes-Benz Bank AG to be able to revoke loan agreements by using  the so-called 'revocation joker'.

The BGH said that the association had filed a declaratory model action to establish that the mandatory information in the bank's consumer loan agreements did not comply with the legal requirements and that the revocation period had therefore not begun to run. This would mean that customers could revoke the contract even years after its conclusion. The association also wanted customers not to have to pay compensation for the loss in value of the vehicle, the BGH said.

However, the court ruled that the Schutzgemeinschaft für Bankkunden e.V. was not qualified to take a declaratory model action under the German Code of Civil Procedure. According to the BGH the association could not show that it had the required 350 members. The BGH assumed that the association carried out its consumer protection activities on a commercial basis, as the majority of its income was generated by the enforcement of claims in and out of court.

"The German declaratory model action was created to ensure consumer protection and to grant relatively easy access to justice," said Johanna Weißbach, an expert in class action litigation at Pinsent Masons, the law firm behind Out-Law. "The ruling of the BGH confirms and underlines these objectives: It suggests that the association does not have consumer protection in mind, but rather the generation of income."

In 2017 and the first half of 2018 the association's income from judicial and extrajudicial claim enforcement exceeded the income from membership fees by far. The BGH said: "the income structure of [the association] also indicates that the (extra-)judicial enforcement of consumer interests does not only play a minor role in the protection of consumers against dishonest business practices."

Weißbach said: "The European Directive on representative actions which will enter into force in the near future, also aims at increasing consumer protection. As under German law, the directive says that only qualified entities may take representative actions. They must meet special criteria, in particular their financing must be transparent and they may not pursue commercial purposes". 

The harmonised model for EU group claims is intended to improve the protection of consumers in the member states, among others in case of mass damages. It shall also enable the effective enforcement of small volume claims which individual consumers would not pursue, but which in turn affect a large number of consumers.  

The declaratory model action was introduced in Germany in 2018.The case that was now ended by the judgement of the BGH was the first case field in Germany under the new law. The ruling confirmed the first instance decision of the Stuttgart Higher Regional Court from 2019.