Austrian High Court rules on whether percentage processing fees for consumer loans are grossly prejudicial

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Background

In the course of a class action, the Austrian Federal Chamber of Labour, as claimant, has challenged several clauses within the general terms and conditions of an Austrian bank. One of those clauses provided for a processing fee of 1.5% of the loan amount, others for percentage processing fees ranging from 1% to 3% in case of bridge financings, extension of bridge loans and framework loans.

The lower courts considered the processing fees to be a consideration for receiving the lender's (main) service and ruled that it was exempt from content control pursuant to § 879 para 3 Austrian General Civil Code (ABGB). According thereto, a contractual provision in general terms and conditions or contract forms which does not specify one of the main subject matters of the contract is null and void if, considering all the circumstances of the case, it is grossly prejudicial to one party. However, the lower courts considered the processing fees to be unclear and therefore invalid in consumer contracts pursuant to § 6 para 3 Austrian consumer protection act (KSchG).

Decision

The Austrian High Court deviated from its jurisprudence and held that:

Processing fees contained in general terms and conditions, which provide for an additional fee in compensation for a service that is usually associated with the fulfilment of the contractual obligations, are not part of the main subject matter of the contract and therefore subject to content control pursuant to § 879 para 3 ABGB.
In this case, the calculation of demanded processing fees as a percentage of the loan amount is grossly prejudicial, as it substantially exceeds the corresponding expenditure already at the average loan amount. Furthermore, it is inexplicable why the costs would increase with the loan amount. For these reasons the court recognised the processing fees to be grossly prejudicial to the detriment of the consumer and the clauses as inadmissible.

Key takeaways

The Austrian High Court has taken the view, that due to recent case law in the European Court of Justice (Caixabank III, para 24; Provident Polska, para 51), a clause in a loan agreement between a consumer and a financial institution requiring the consumer to pay a fee for services in connection with the examination, granting or processing of the loan does not concern the main subject matter of the contract and is therefore subject to control pursuant to § 879 para 3 ABGB.
Therefore, according to the Austrian High Court, existing case law in Austria issued before this decision, pursuant to which fees that are to be included in the effective interest rate (interest rate considering all additional fees and costs) are part of the main subject matter of the contract can no longer be upheld.
The ECJ (Caixabank III, para 61) ruled processing fees in accordance with national legislation to be permissible if a possible significant imbalance to the detriment of the consumer is subject to effective review by the competent courts.
The validity of fees demanded by financial institutions for standard services provided in connection with the inception and conclusion of consumer loan contracts - such as processing fees - must therefore be reviewed in relation to actual costs, leaving uncertainty whether percentage fees are permissible at all or (individual) flat-rate fees must be considered.
Albeit held in the course of a consumer dispute, content control pursuant to § 879 para 3 ABGB applies equally to entrepreneurs whereas future disputes with large impact on financial institution’s regular practices are to be expected.

OGH, 7Ob169/24i, 19 February 2025