Expropriation of savers: are negative interest rates inadmissible for bank customers?

An exciting dispute is currently being fought in Germany's courts. Do the banks, without a viable legal basis, collect money from savers in exchange for letting them use their savings to run their business for a while? Is it possible that negative interest rates for bank customers are fundamentally inadmissible and represent an illegal expropriation? The question is of some relevance: under sometimes euphemistic names such as “credit fee” or “custody fee”, 553 banks in Germany are now charging negative interest rates, 525 of them also from private customers. And that with further decreasing allowances.

The phenomenon is comparatively young, it annoys many of those affected and divides society. People don't want to get used to negative interest rates, and they definitely shouldn't. Before 2014, there were often phases in which interest rates were negative after deducting inflation. However, many had considered negative nominal interest rates to be impossible for savers. Why should someone take money to the bank when they have to pay for it?

Today we know better.

There are some who now keep their money at home in cash in the safe.

But the crowd doesn't do that.

The saver nation Germany has remained loyal to saving even in times of penalty interest rates.

Initially, it was more wealthy bank customers who were affected, but this has almost been reversed with the lowering of the tax exemptions.

Many wealthy people have cleverly shifted their money.

Many normal savers, on the other hand, capitulate to negative interest rates.

Does only one borrower have to pay?

In a remarkable ruling, the Berlin Regional Court has now overturned the negative interest rates of the local Sparda bank.

The bank wanted negative interest from 25,000 euros on the current account and from 50,000 euros on the overnight money account.

The Federal Association of Consumer Organizations had sued.

The court declared the corresponding clauses ineffective, the bank should repay the customer the money.

The judgment is not yet legally effective, the bank wants to appeal.

The procedure is also just one of many in which the legal limits of negative interest are currently being negotiated.

Before the Frankfurt Regional Court, for example, their admissibility is to be clarified specifically on the savings account.

But the reasoning of the Berlin Regional Court is undoubtedly interesting.

For its rejection of custody fees, it relies on the legal definition of a loan agreement in Section 488 of the German Civil Code (BGB).

There you can read about the direction in which interest should flow: from the borrower to the lender.

Simplified, a customer deposit at a bank is nothing more than a loan.

The customer lends money to the bank.

He can receive interest for it, but he doesn't have to pay it.

The customer must be left with at least the amount that he has paid in.

This rule is circumvented by the custody fee.

In the end there is an enormity

Hope for everyone who is angry about negative interest rates? It is unclear whether this legal opinion will prevail. Most recently, the Leipzig Regional Court, previously also the Tübingen Regional Court, ruled differently. Noteworthy: the court in Leipzig cited precisely the fact in favor of the banks with which they justify their custody fees: the negative interest that banks themselves have to pay to the ECB. Against this background, constitutional lawyer Paul Kirchhof called ECB negative interest rates in combination with inflation an unconstitutional expropriation of savers.

The economist Martin Hellwig contradicts this. His central argument: There could be no right for savers to a positive interest rate, even an official minimum interest rate would not be compatible with a market economy. In addition, the ECB can only influence real interest rates to a limited extent - and only those are relevant for savers. The low interest rates have other causes, such as demographic change, for which it is not so easy to sue. The ECB could certainly not order the savings interest at banks and thus legally correspond to the fact of an "expropriation of savers".

The banks are of course dependent on the decisions of the ECB.

However, they cannot deny that they are jointly responsible for the custody fees.

There is evidence in annual reports that some banks even collect more negative interest from customers than they pay themselves.

So they are not only getting the negative ECB interest rates back from their customers.

The mere fact that the negative interest regulations are not the same everywhere shows that these are business policy decisions of the banks - and in the end these actually lead to the enormity that savers are asked to pay for their savings.