Payment protection insurance conflict heads to the Federal Constitutional Court
In the dispute over the one-week cooling off period for concluding payment protection insurance contracts, German insurers are appealing to Karlsruhe. The German Insurance Association (GDV) and 22 other companies have filed a complaint to the constitutional court.
From 2025, under current regulations, payment protection insurance contracts can only be signed at least one week after the associated loan agreement is concluded – otherwise, the contract will be void. „This cooling-off period is, in our view, contrary to European law“, says Moritz Schumann, Deputy Chief Executive of the GDV.
„Bundling“ allowed, „tying“ prohibited
The association refers to the EU Consumer Credit Directive. The regulation prohibits banks from requiring payment protection insurance for a loan agreement (tying), but it does allow contracts to be concluded as a package (bundling). The insurers see a contradiction with the Future Financing Act, where the one-week pause is enshrined, thereby temporally separating the agreements. This removes the option for credit customers to insure against defaults from the start, says Schumann.
This issue is a significant one for the industry: The Association of German Banks, representing intermediary banks, warned last November of a „de facto sales and product ban“ and, like the GDV, considers the measure to be „contrary to European law“. According to a survey, almost one in three installment loans is linked to payment protection insurance. The GDV estimates that in 2022 the premium volume was 4 billion euros.
Payment protection, or residual debt, insurance is intended to provide protection against payment defaults due to unemployment, illness, or death. It is offered by banks, as well as car dealers and retailers, along with financing. The insurance policies are controversial due to their costs, potential deficiencies in distribution, and exclusion clauses. Banks and insurers have responded to the criticism with codes of conduct. Since mid-2022, a commission cap of 2.5% for intermediary banks has been in place, resulting in lower earnings from the mediation role.
Constitutional complaints rarely successful
Constitutional complaints are a common legal remedy in Karlsruhe, but they rarely succeed. Of 5,361 complaint proceedings decided, only 111 were successful, according to the Federal Constitutional Court's latest figures for 2020. In previous years, the success rate was usually close to 2%.
