German Federal Court of Justice upholds collective debt collection model in groundbreaking decision

In an unprecedented decision of July 13, 2021, the German Federal Court of Justice, the Bundesgerichtshof (BGH), upheld a mass debt collection or ‘Sammelklage-Inkasso” model which mainly aimed to enforce collective complaints in court rather than amicably[1].

What was it ?

The ruling concerns a case regarding a mass complaints structure that was put in place following Air Berlin’s insolvency in 2017 to help enforce air passenger claims. In this particular case, the applicant, a limited liability company registered as a provider of legal services for debt collection, or ‘Inkassodienstleister ‘, has collected receivables, by way of assignment, from Air Berlin customers whose flights were canceled due to insolvency.

Combining several claims from Air Berlin customers, the plaintiff then sued the former executive director of Air Berlin for reimbursement of flight costs on the grounds of the allegedly late insolvency filing.

Both the German District Court and the Court of Appeal dismissed these claims, which were based inter alia on an alleged violation of the German Law on Legal Services, the Rechtsdienstleistungsgesetz (RDG). On appeal, the BGH quashed the second instance judgment and referred the case back to the Court of Appeal. By examining the contested model of collective debt collection from different legal perspectives, the BGH found that the model put in place by the plaintiff was in all respects in line with the German RDG.

The BGH decision – collective debt collection model covered by the collection authorization

The BGH ruling ruled that a debt collector who plans to go to court immediately to assert claims, is acting within the limits of his debt collection license under the German RDG[2] regardless of whether they are individual or collective complaints.[3]

Noting that the admissibility of mass debt collection models has been heavily debated in German case law, the BGH has taken a more liberal stance, rejecting the dominant view to date among German first instance courts that have ruled against such cases. In particular, the BGH judgment enshrined the freedom of enterprise in Article 12 of the German Basic Law (Grundgesetz).

It is important to note that the BGH did not see a significantly increased risk of unqualified legal services arising from the mass complaints collection model, as any registered legal service provider is required to submit certain professional legal qualifications to registration authority, and that qualified lawyers are legally required to be involved when the case is brought before the courts.

The BGH decision – the collective debt collection model does not create conflicts of interest

BGH went on to clarify that the mass debt collection model does not create conflicts of interest.[4] The BGH underlined that the interests of the debt collector and its clients, on the one hand, and the interests of the individual clients within the collective claim are in principle aligned as they all share a common interest in securing the enforcement of the debt. more efficient as possible.

The BGH argued that the benefits of collective executions outweigh the residual risks associated with varying degrees of chances of execution posed by claims bundled in a collective settlement. The residual risk may be that claims with lower odds of execution may negatively impact claims with higher odds of execution, but the benefits include cost risk sharing and increased negotiating power.

The BGH also estimated that the more parallel the claims, the lower the risk. On the other hand, the more diversified the claims, the higher the risk. However, these risks can be avoided by forming sufficiently similar groups of claims.

Any remaining differences in this direction would, according to the BGH, be negligible and would not therefore justify the invalidation of the assignment of customer debts to the debt collector.

In conclusion, why is this decision important?

The importance of the BGH decision cannot be overstated: it is not only a victory for legal service providers, such as debt collectors, but also significantly improves enforcement possibilities for consumers or debtors. companies.

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