BGH judgment: banks are gambling away their reputation – economy

The decisions of the Federal Court of Justice should slowly give the savings banks and Volks- und Raiffeisenbanken food for thought. For the second time within a short period of time, the Karlsruhe judges have passed a judgment against them and in the interests of consumers: In April, they declared the practice of enforcing fee increases simply by changing the general terms and conditions to be unlawful, without obtaining the consent of the customers. Now they have rejected the clauses with which many banks cut the interest on long-term premium savings contracts “in the manner of the landlord,” as the judges put it.

Both judgments will cost the savings and cooperative banks billions. Germany’s highest judges have attested to them that they have used illegal clauses for decades for their own benefit and to the detriment of their customers. You could also say that they systematically ripped off their customers. Taken in and of itself, this is brazenness, the extent of which the public is not even fully aware of.

What makes the matter a complete scandal is the way the institutes deal with the latest ruling on premium savings contracts. Instead of compensating their customers, most of them continue to gamble on time, apparently in the hope that more and more cases will become statute-barred. Even the financial supervisory authority Bafin, which has a reputation for being bank-friendly, stepped in in June and asked the financial institutions to pay customers back any lost interest on their own initiative. The result was that more than 1,100 banks had appealed against the decision.

Such behavior shows that the savings banks and cooperative banks have not understood what it is about: They are well on the way to destroying their still good reputation. When the big banks brought the world to the brink of the abyss in the financial crisis of 2008, the public and cooperative institutions in Germany took advantage of this, with good reason, to portray themselves as a haven of stability that had nothing to do with the methods of others. The branch banks were seen as honest brokers who work in their business area for the benefit of private and corporate customers and donate money to clubs and charitable organizations.

The banker’s image has suffered badly

This image of the good banker has suffered badly lately. It is probably a direct consequence of the fact that business has become difficult for the branch banks. For decades they made a living from taking the money in from savers at lower rates and lending them at higher rates than loans. The low interest rate policy of the European Central Bank, which has persisted for more than ten years, has greatly reduced this interest rate margin. Even the business with commissions for brokering insurance or funds no longer brings in as much, because cheap direct banks compete with institutions with branch networks. Finally, there were also the neo brokers, who offer share and fund purchases for free.

Savings banks and cooperative banks have come under pressure from many sides. This has led them to feel compelled to pass this pressure on to their customers by raising fees or illegally lowering the interest rate on long-term contracts. On the other hand, one has seldom seen a bank that is accommodating to its customers when it comes to enforcing their own rights. Be it when overdrawing the account or when a loan payment is not due.

What falls by the wayside is the trust of the customers, one of the last advantages that savings banks as well as Volks- and Raiffeisenbanken still have over private commercial banks. You have to be careful not to lose that too. What it takes is nothing less than a cultural change. The financial institutions cannot continue as before and treat customers like dairy cattle. Because in the end they only have the very trusting customers, the young and flexible ones have already migrated to direct banks and neo brokers. For a bank that is not enough as a business model to survive in the future.

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