The law against illicit telephone advertising and for improving consumer protection with respect to specific modes of distribution, of which we have given an account in our last newsletter in June 2009, came into force on August 4, 2009. The law provides inter alia for changes to the German Civil Code concerning distance contracts. In particular, Sec. 312 d para. 3 German Civil Code was amended.

Previously, according to Sec. 312 d para. 3 no. 1 German Civil Code which contained a regulation for financial services in distance agreements, the right of withdrawal expired before maturity if the contract was completely fulfilled by both parties at explicit consumer’s request before the consumer exercised his right of withdrawal.

For all other kinds of services in distance agreements, the right of withdrawal expired already at the moment when the service provider started carrying out the service upon explicit approval by the consumer before the end of the withdrawal period, or when the consumer himself initiated the service provision (Sec. 312 d para. 3 no. 2 German Civil Code). This differentiation according to the kind of service was criticized for the fact that the consumers did not have any possibility to withdraw from the contract after the beginning of service provision, de facto curtailing the consumer’s right of withdrawal. Since the consumer was not able to prove the quality of the provided service or to meet the service provider personally before the service was started, there is, in particular after the beginning of service, a valuable interest of the consumer to withdraw from the contract. Moreover, the consumer is often not able to determine when the service provider started carrying out the service.

The amended regulation of Sec. 312 d para. 3 German Civil Code determines for all kinds of services in distance contracts that the consumer’s right of withdrawal expires before maturity if the contract was completely fulfilled by both parties at the consumer’s request before the consumer exercised his right of withdrawal. Online trades should amend their terms and conditions on terms for withdrawal accordingly. The expiration of the right of withdrawal requires that the consumer and the service provider completely fulfill each contractual performance obligation. That is, for example, the case when the consumer, too, fulfills his payment obligation. It is expected that service providers offering their services via an online platform will increasingly offer their services against prepayment. By this means, they will be able to effectuate the expiration of a consumer’s right of withdrawal before maturity.

In view of the amendment of the German Civil Code, the official instruction on the terms for withdrawal was also modified. In the past, differences between the wording of the law and the wording of official instruction, which many service providers apply, caused a number of legal disputes. However, the official instructions will soon get the status of a legal act. They will be included as annexes 1 and 2 to the Introductory Act to the German Civil Code. Thus, service providers will be able to rely on the wording of the instruction in the respective applicable version without running the risk of being given a written warning for using an unlawful instruction. These changes are regulated by the Act for the implementation of the Consumer Credit Directive and the part of the Payment Services Directive regulating civil law provisions and for the new arrangement of the legal provisions regarding the right of withdrawal and the right of return. With the exception of the regulations implementing the Payment Services Directive, the Act will come into force on June 11, 2010.