General overview of banking law

German banking law is in itself an independent branch of German law; broadly speaking, it deals with the legal relationships of the banking industry with a clear focus on the business relationship between credit institutions and customers. Capital market law emerged with the appearance of stock exchanges in 1625 in Frankfurt.

A core area of banking law comprises legal provisions that govern legal matters relating to banking and capital markets. However, banking law must to some extent be understood as an open concept, since it is ultimately a legal science that forms a variable intersection of different specialties and almost inevitably touches on international law.

Some specialist areas relevant to banking law

The legal-scientific areas of banking law primarily include commercial law and parts of civil (private) law as well as public law. Fundamentally, however, there must be a clear connection to the conduct and organization of credit institutions (banks, etc.) and/or the relationship between a credit institution and its customers.

Accordingly, banking law also includes numerous statutory directives that have an origin in economic regulation. A typical example are legal norms taken from the Kreditwesengesetz, which laypersons mistakenly equate with banking law. Other common legal sources of banking law include, for example, the Bundesbankgesetz, the Börsengesetz, the Depotgesetz as well as the Wertpapierhandelsgesetz and the Geldwäschegesetz.

Role of the BGB

The most essential legal basis of private banking law, however, is the Bürgerliches Gesetzbuch (BGB). In this context, it should be noted that regulations concerning the customer's general legal capacity and regarding the applicable framework conditions as well as the eventual formation of a contractual relationship or a debtor-creditor relationship and its settlement and extinguishment are of banking-law relevance.

Furthermore, there are laws that relate to certain types or groups of credit institutions. In this regard, the Bausparkassengesetz, the Pfandbriefgesetz, the Investmentgesetz and the Sparkassengesetz of the federal states must be mentioned, among others.

In addition, banking law increasingly covers factors that actually belong to insurance law and thus to financial services law. This is evidenced not least by the fact that the Bundesanstalt für die Bankaufsicht and the Bundesanstalt für die Versicherungsaufsicht, which were once independent of each other, have now been merged into the Bundesanstalt für die Finanzdienstleistungsaufsicht.

A telling example of a matter that was formerly within insurance law and is now dealt with by banking law is private retirement provision.

Core areas of private banking law

The area commonly referred to as private banking law comprises the statutory regulations or framework conditions concerning the relationship between the customer and the credit institution as well as the attendant rights and obligations of the respective parties. However, the term private banking law is slightly misleading, since the customers are not necessarily private individuals but may also be businesses, offices, authorities and other institutions.

Typical areas regulated by private banking law include, for example, the contractual relationship between the customer and the credit institution as well as all conceivable aspects concerning

• types of accounts,
• savings deposits,
• payment cards,
• payment transactions in general and transfers,
• direct debit procedures,
• debit procedures and
• authorizations to collect (direct debit authorizations) in particular,
• loans in general and loan collateral in particular,
• possible claims of credit institutions and customers and the related garnishment possibilities, or
• the rights and obligations of surviving dependants in the event of the customer's death.

Of course, private banking law also includes legal norms concerning the insolvency of the customer or of the credit institution. Binding maximum limits for fees and other cost statements of credit institutions are also anchored in banking law.

Specific aspects of private banking law at a glance

• Darlehensvertrag (§ 488 ff. BGB)
• Verbraucherdarlehen (§§ 491 ff. BGB)
• Finanzierungshilfen (§§ 499 ff. BGB)
• Geschäftsbesorgungsverträge (§§ 675 ff. BGB)
• Recht der Zahlungsdienste (§§ 675 c ff. BGB)
• Bürgschaft (§ 765 ff. BGB)
• Sicherungsübereignung (§§ 929, 930 BGB)
• Grundschuld (§§ 1191 ff.)
• Hypothek (§§ 1113 ff. BGB)

A core area of banking law in detail

The contract is considered the basis of the customer's business relationship with the credit institution. In addition, almost all criteria of the said relationship must be recorded in the contract. Accordingly, the law on contract formation is arguably one of the most essential areas of banking law. Because the legal regulations are correspondingly extensive, only a limited discussion can be provided here.

The most fundamental regulations concern the contractual obligations of the customer and the credit institution as well as possible claims for damages in the event of a breach of contract. They also concern the distinction between primary obligations and secondary obligations.

Furthermore, there is a binding regulation that specifies under which conditions a contract is valid or invalid. This begins already with the terms and conditions (AGB), which must demonstrably comply with legal norms. In this regard, it is also clearly defined when a contract per se meets the standard of immorality (Sittenwidrigkeit). The legal basis of private autonomy (Privatautonomie) or of enforceable remuneration is also a central point in relation to the contractual relationship. The same applies to general data protection and banking secrecy and valid exceptions thereto.

Customer transparency through banking law

There is also the so-called Haustürwiderrufsgesetz, which is intended to protect customers from social and above all economic hazards, and the Verbraucherkreditgesetz. The role of Schufa in contract conclusion as well as regulations regarding the issuance, limitation, revocation and misuse of a power of attorney, which can be part of a contractual agreement, are also set out in banking law.

According to banking law, it must also be recorded in the contract or at least clarified in the pre-contractual consultation under what conditions the customer or the credit institution is liable in the event of misuse of the payment card or unauthorized debits and the like.

In any case, advisory conversations, written correspondence and contract clauses by the credit institution must be formulated transparently and understandably for the customer in accordance with banking law. In return, the customer is also obliged to make certain statements that must be truthful.

Violations of banking law

Violations of banking law by the credit institution or the customer do not necessarily have to lead, depending on the severity of the offense, to a criminal report or a court hearing and a conviction or a judgment by a judge. Instead, an out-of-court settlement can be reached with the help of a neutral arbitrator called an ombudsman or ombudswoman, or by an impartial body referred to as an ombuds council.

However, the arbitrator or the members of the corresponding body must have been recognized by the Bundesverband deutscher Banken e.V., the Bundesverband der Deutschen Volksbanken und Raiffeisenbanken, the Deutscher Sparkassen- und Giroverband, the Bundesverband Öffentlicher Banken Deutschlands, the Bundesverband der Privaten Bausparkassen, the Schlichtungsstelle der Deutschen Bundesbank or the Schlichtungsstelle der Landesbausparkassen.

If this requirement is met, the arbitration award is generally binding for the involved credit institution up to a certain monetary limit. The affected customer, however, can still sue the credit institution after a rejection by the arbitrator or the arbitration body. Alternatively, an attempt can be made to achieve an amicable settlement with the help of so-called mediators.

These mediators, unlike the aforementioned ombudspeople who are somewhat comparable to a judge, are more like lawyers. Consequently, mediators do not render an arbitration award in the strict sense. For this reason alone, both the injured credit institution and the disadvantaged customer are free to use further legal remedies as soon as efforts to reach an amicable settlement through the mediators consulted have failed. In the event of a clear or even alleged violation of banking law, it is of course also possible to file a lawsuit directly.