Banks that have started charging for previously free current accounts, private health insurers that deny benefits and securities dealers who conceal information: more and more people are venting their anger about the business practices of banks, insurers and securities dealers by complaining to Germany’s financial supervisory authority BaFin.
That’s the reason why BaFin received more than 17,200 complaints in 2019. While the number of complaints about insurers remained high, at 7,851 (2018: 8,097), the grievances about credit institutions rose considerably compared with the previous years. There were 8,525 complaints about banks in 2019 – more than ever before, and a year-on-year increase of around 50 per cent (2018: 5,791). By contrast, fewer complaints were received about the securities business, for which BaFin received precisely 911 complaints in 2019, compared with 1,072 the year before.
Problems that consumers have had in connection with the final implementation of the Second Payment Services Directive (PSD2) since mid-September last year are the main reason for the sharp rise in complaints about the banking sector. These rules introduced stricter requirements, specifically a “strong authentication procedure” (two-factor authentication). The procedures in place before this no longer complied with the new requirements. For example, consumers complained to BaFin about problems with configuring new procedures and a lack of support from the banks. There were claims that the customer service units and call centres at several banks were overwhelmed.
Consumers can complain directly to the undertakings whose services they use, and this should always be the first choice if they become aware of any discrepancies (see info box “There are many ways for consumers to complain – an overview of the options”). If their complaints fall on deaf ears at the undertaking, a wide range of other options are available to customers so that they can assert their rights. One of them is lodging a consumer complaint with BaFin.
At a glance:There are many ways for consumers to complain – an overview of the options
Complaining to the undertaking
If consumers become aware of any potential discrepancies, they should contact the financial undertaking they have a contract with. This allows both sides to clarify the facts of the matter and gives them an opportunity to reach an amicable solution. Some background information: undertakings are legally obliged to deal with customer complaints promptly. The function of their in-house complaints office is to examine all complaints objectively and appropriately. If the undertaking has examined the case, it must tell the customer who complained about the outcome of their complaint in plain language that is easy to understand. This response should be provided before further steps can be taken.
Everything that customers need to know if they want to complain to an undertaking must be published by the undertaking on its website, in brochures or contract documents in a form that is easily accessible. This includes the process that will be followed for handling the complaint, such as deadlines or processing periods and the contact details of the complaints office. It may also happen that the undertaking will only provide the customer with more detailed information on the complaints procedure on request, or when it confirms receipt of the complaint. The complaints procedure is free of charge for customers. If the undertaking rejects a customer’s complaint for various reasons, further courses of action are still open to that customer. The undertaking must also inform the customer about these options in detail.
Out-of-court dispute resolution
Many banks, savings banks and insurers in Germany work together with private dispute resolution services on a voluntary basis – and will accept their decisions under certain circumstances. The ombudspersons who work at these out-of-court dispute resolution bodies are mainly former judges who make independent and impartial decisions. Apart from out-of-pocket expenses for postage, photocopies and phone calls, this sort of dispute resolution procedure does not cost anything for consumers. Contact details and further information are available online, including on BaFin’s website.
Not all disputes have to land in court, but all consumers have the fundamental right to take legal action, in particular if other options have been exhausted without success. However, before taking this step, consumers should consider the possible consequences, such as the legal and court costs they may face.
What BaFin does – and where its legal limits are
As a general rule, BaFin is responsible for protecting all consumers in the field of financial services. In the interests of all consumers, BaFin supervises banks and insurers, in other words financial undertakings, ensuring their stability and the integrity of the entire financial system. BaFin investigates irregularities at undertakings it supervises and supports consumers.
There is one condition for complaining to BaFin: the complaint must relate to a financial undertaking that is supervised by BaFin. For example, BaFin is not responsible for complaints about statutory health, accident or pension insurance schemes. The same applies to some regional insurance undertakings that are supervised by the authorities of the relevant federal states. And BaFin is also currently not responsible for financial services providers that do not conduct any business that is subject to an authorisation requirement under the Banking Act (Kreditwesengesetz), for instance investment fund brokers. Foreign undertakings are only subject to supervision in Germany to a limited extent. Consumers who feel they have been treated unfairly can call the free consumer helpline (0800/2100500) to find out in advance if BaFin can help them with a specific complaint.
Uncovering irregularities at financial undertakings
For BaFin, information about management that is not fit and proper or organisational shortcomings at an undertaking, for example, is important for ongoing financial supervision. For instance, customer complaints can help expose irregularities at supervised undertakings or cases of serious misconduct by individual employees – and put an end to them. A complaint by a single customer can therefore help a large number of consumers.
Legally, a complaint by a customer about an undertaking supervised by BaFin is a petition. Article 17 of the Basic Law (Grundgesetz) gives this right of petition to everybody in the Federal Republic of Germany. Every person has the right, individually or jointly with others, to address written enquiries, requests or complaints to competent authorities. Under section 4b of the Act Establishing the Federal Financial Supervisory Authority (Gesetz über die Finanzdienstleistungsaufsicht – FinDAG), consumers can approach BaFin directly if they want to complain about an undertaking as a customer.
Intervention in the case of extensive misconduct
What BaFin can and cannot do in the area of consumer protection is governed in particular by section 4 (1a) sentence 1 of the FinDAG: this sets out that BaFin can “issue any and all orders to institutions and other undertakings (…) that are appropriate and necessary to stop or prevent irregularities that are relevant to consumer protection”. For example, BaFin can examine whether an undertaking it supervises complies with agreed contract terms and conditions and legal requirements.
Legally, however, BaFin can only take action against an undertaking if two conditions are satisfied: first, section 4 (1a) sentence 3 of the FinDAG states that there must be an “irregularity”, in other words “a substantial, persistent or repeated violation of consumer protection legislation”; second, general clarification must be necessary in the interests of consumer protection. As a rule, extensive misconduct by the entire banking, savings bank and insurance industry will lead to such a violation. It may also apply in some cases if a group of supervised undertakings exhibits misconduct. For example, if financial undertakings demand fees from customers for services that the law actually prevents them from charging. Under certain circumstances, even a one-time violation may be classified as substantial. It may also be regarded as substantial if individual consumers only suffer minor losses, but undertakings derive a considerable financial benefit in the aggregate from the misconduct.
The lawmakers highlighted several types of these “irregularities” in the explanatory memorandum to the law. These relate to cases in which undertakings violate the provisions of consumer protection law that have been confirmed by the supreme courts. BaFin can also take action against undertakings that violate consumer protection rules irrespective of these types of irregularities.
Collective interests of consumers
Under the law, however, BaFin only starts taking action if the “nature and extent” of the violation endangers not only the interests of an individual consumer, for example because of undertakings’ business or insurance terms and conditions. BaFin is therefore the wrong point of contact for consumers who wish to assert their individual rights. For example, individual consumers cannot assert any claims for damages against undertakings with BaFin. Nevertheless, it is important for consumers who suspect they have been treated unfairly to contact BaFin because it is often not possible to say from the outset whether the collective interests of consumers are affected or not.
The options open to BaFin
BaFin can issue orders if a financial undertaking violates a provision of consumer protection law. Specifically, the financial supervisors can issue administrative acts that quickly impose requirements or prohibitions on the undertakings. But it does not have to reach a stage where BaFin issues a formal order because the financial supervisors are in regular contact with the undertakings they supervise. For example, if a complaint has been received, they can ask the undertaking to comment (request for information) to allow them to criticise any misconduct and find a solution. As a rule, a reference to the potential measures that are available to BaFin if the undertaking does not rectify the irregularity is sufficient (see case studies).
How BaFin examines complaints
BaFin normally processes consumer complaints in several steps. Initially, the financial supervisors examine whether they can assess the case purely on the basis of the available documents. If that is not possible, they clarify the facts in further steps. This sees them asking the financial undertaking concerned for comments. In most cases, they also forward the customer’s letter of complaint. As soon as the undertaking has responded, BaFin examines the response applying supervisory standards and decides whether – and if so, which – further steps against the undertaking are required. The consumer who lodged the complaint receives a letter about the situation. If the financial undertaking concerned agrees, BaFin will also enclose its comments. However, BaFin does not notify the customer of the outcome of its legal assessment of the consumer complaint as a matter of principle. This is due in particular to the obligation of confidentiality. Processing the complaint may take several weeks if BaFin asks the undertaking concerned to comment on the complaint.
Customer complaints: the legal limitations on BaFin
BaFin’s supervisory activities are subject to underlying legal principles. This means that it can only deal with certain customer concerns. As a matter of principle, BaFin may not issue legally binding decisions on disputes in individual cases, for example. Judges in the civil courts are authorised to do this. BaFin cannot assist consumers who have suffered a loss in legal claims for damages. They may need to assert such claims before a court with legal advice from a lawyer in any particular case. The consumer centres also offer assistance. BaFin is prohibited from giving opinions on legal questions or offering general legal advice. These tasks are reserved by law for the consulting professions such as lawyers. For further information, contact the Federal Bar (Bundesrechtsanwaltskammer) .
BaFin accepts business policy decisions by undertakings it supervises – provided they follow applicable law. Branch closures by undertakings, increases in custody charges, discontinuing the distribution of a particular insurance product or ceasing to offer investment advice are matters that are not generally subject to supervision by BaFin.
At a glance:Legal sources
The main provisions of consumer protection law are to be found in the Banking Act (Kreditwesengesetz – KWG), the Payment Services Supervision Act (Zahlungsdiensteaufsichtsgesetz – ZAG), the Insurance Supervision Act (Versicherungsaufsichtsgesetz – VAG), the Securities Trading Act (Wertpapierhandelsgesetz – WpHG), the Investment Code (Kapitalanlagegesetzbuch – KAGB) and the Civil Code (Bürgerliches Gesetzbuch – BGB).
Dr Holger Schäfer
BaFin Division of Supervision of Compliance with Rules of Conduct and Organisational Requirements, Investor Protection Savings Banks & Cooperative Banks