When you put money in a checking or savings account, you expect the amount in it to go down as you spend and withdraw its contents, and even pay bank fees. What you don’t expect is for that amount to go down without you doing anything. But that was the prospect facing German consumers recently.
A credit union was considering charging a minus 0.5 percent annual rate on both types of accounts, in addition to its fees. Yesterday, however, its customers caught a break when a court ruled that banks can’t introduce negative interest rates on existing checking and savings accounts. It said that such a charge, coming on top of existing fees, unreasonably disadvantaged customers.
A consumer watchdog in Saxony brought the case against the Volksbank Reutlingen, a mutualist bank in the southwestern state of Baden-Württemberg. The mutualist banking sector, where depositors own the bank, roughly corresponds to credit unions in the US or building societies in the UK and constitutes the third pillar of German banking, along with private sector banks and government-backed savings banks.
“The case highlights the ‘creative’ interest and fee structure of some banks,” said Kerstin Schultz, who led the team from Saxony’s consumer protection bureau. The group wanted to nip the practice in the bud before it spread to other banks.
Volksbank Reutlingen said a year ago it may impose the negative rate on all checking accounts and on savings accounts exceeding €10,000 ($11,800). The court ruled that the bank didn’t provide any further service in exchange for the penalty rate. “For this reason, it is a double pricing of an identical service, which unreasonably disadvantages the customer and is therefore inadmissible,” the judges sitting in the city of Tübingen said.
The bank never actually imposed the negative rate. It simply wanted to set it out as a possible charge. In the course of court proceedings, it made the declaration requested by the consumer agency that it wouldn’t apply the rate to existing accounts. But the consumer group also wanted a decision on the principle, which also would decide who paid the court costs.
The ruling applies to existing accounts. Banks can still make it a condition when opening new accounts. Some eight banks in the mutualist sector impose the negative interest rate on smaller deposits, usually labeling it a custodial fee. In part, it is to compensate for the negative interest rates the banks must pay to the European Central Bank for overnight deposits. Many banks impose a charge on larger deposits, over €100,000.
Elisabeth Atzler covers banking for Handelsblatt from Frankfurt. Darrell Delamaide adapted this story into English for Handelsblatt Global. To contact the author: firstname.lastname@example.org