On 15 December 2009, the German Federal Court allowed a consumer to cancel a payment protection policy even though the consumer could only strictly rely on a cooling off cancellation right under the consumer loan agreement. The court determined that the payment protection policy related to the consumer loan as an "attached contract" because the lending bank was a beneficiary of the insurance policy, and the insurance premium was paid out of the loan amount. In addition, the bank held itself out to be a business partner of the insurer.
The Court argued that the connection between the two individual contracts was so close as to constitute - from an economical perspective - one unit. The insurance contract would not have been made without the consumer loan, and the same applies to the loan amount which, under the contract terms, had to be used for the insurance premium. The court considered the following facts to support its decision: both contracts were made on the same day, the forms used looked similar and both contained cross-references to the other. Finally, the court saw the need to protect the consumer against any risk resulting from two separate contracts of which one is made only with the intention to finance the other.
The court held that, as a consequence of identifying the insurance policy as attached to the consumer loan, the cooling off notice was only valid if it contained information stating that the exercise of the cancellation right for the loan also extended to the payment protection policy and vice versa.
The court ruling anticipates an even more strict statutory provision which transposes the Consumer Credit Directive (2008/48/EC) into German law and will come into effect on 11 July 2010. Under this law consumers will have the right to cancel e.g. an insurance policy together with the consumer loan even where no direct connection exists, but where the insurance cover qualifies as an additional service to the consumer credit agreement. However, it is still not entirely clear what the correct wording of the cooling off notice would be in this case.