In principle

The VIII. Civil Senate of the German Federal Court of Justice today issued a landmark ruling on which activities a company is permitted to perform on the basis of its registration as a debt collection service provider under the Legal Services Act.

Facts and course of proceedings

The plaintiff Lexfox, operator of www.wenigermiete.de, is registered at the Berlin Court of Appeal as a legal service provider for debt collection services (§ 10 para. 1 sentence 1 no. 1 RDG). Among other things, it advertises that it can enforce the rights of residential tenants under the rent control law “without any cost risk”; it only demands payment of one-third “of the annual rent saved” if it is successful.

In the present case, a residential tenant from Berlin commissioned the plaintiff to assert and enforce his claims and any declaratory claims in connection with the “Mietpreisbremse” (§ 556d BGB) and assigned his claims in this regard to the plaintiff. Subsequently, the plaintiff – after prior request for information and complaint pursuant to § 556g para. 2 BGB – asserted claims against the defendant housing association for repayment of excessive rent and payment of legal costs.

The action was unsuccessful before the Court of Appeal (LG Berlin, 63rd Civil Chamber, Grundeigentum 2018, 1231). In its appeal, which was allowed by the Court of Appeal, the plaintiff is pursuing its claim in full.

The decision of the Federal Court of Justice

The VIII. Civil Senate, which is responsible, among other things, for residential tenancy law, has ruled that the activity of a debt collection service provider under Section 10 para. Civil Senate of the Federal Court of Justice has ruled that the activity of the debt collection service provider to be assessed here pursuant to Section 10 para. 1 sentence 1 No. 1 RDG is (still) covered by the authority to provide collection services pursuant to Sec. 2 para. 2 sentence 1 RDG – namely to collect receivables. This already follows primarily from the – rather broad – understanding of the term “collection service”, which the legislator assumed in the context of the Legal Services Act – in accordance with the case law of the Federal Constitutional Court (BVerfG, NJW 2002, 1190; BVerfG, NJW-RR 2004, 1570).

The purpose of the Legal Services Act is to protect those seeking legal services, legal transactions and the legal system from unqualified legal services (Section 1 (1) sentence 2 RDG). Accordingly, Section 3 of the Legal Services Act stipulates that the independent provision of extrajudicial legal services is permitted only to the extent permitted by the Legal Services Act or other laws.

Such an element of permission, to the extent of which the provision of extrajudicial legal services is permissible, is contained in Section 10 para. 1 sentence 1 no. 1 RDG. According to this provision, registered persons who – like the plaintiff in the present case – are entered in the Legal Services Register may provide (extrajudicial) legal services in the field of collection services (Section 2 (2) sentence 1 RDG) on the basis of special – theoretical and practical (Section 11 (1), Section 12 (1) no. 2 RDG) – expertise.

However, a violation of § 3 RDG regularly leads to the invalidity of the collection agreement concluded between the legal service provider and its customer, including an agreed assignment of the claim, pursuant to § 134 BGB. As the Federal Court of Justice ruled today, this also applies in the case of a registered debt collection service provider, provided that he is charged with a clear and not merely minor overstepping of his authority to provide services.

With the Legal Services Act, which entered into force in 2008, the legislator clearly pursued the goal of a fundamental reorganization of the law governing extrajudicial legal services based on the aspects of deregulation and liberalization, as is clear from the materials of the legislative process (Bundestag Printed Paper 16/3655; 16/6634; Bundestag Plenary Record 16/118, p. 12256 ff.). In doing so, it expressly wanted to take up, implement and continue the case law of the Federal Constitutional Court (BVerfG, decision of February 20, 2002, NJW 2002, 1190), which had already pointed in this direction and at the same time take into account the deregulation efforts of the European Commission in the area of the free movement of services.

Development of new job profiles?

In this context, the legislator also had in mind that the Legal Services Act should allow for the development of new professional profiles and thus be designed to be future-proof, in particular with a view to the further developments of the legal advice market to be expected according to the legislator’s assessment.

In the above-mentioned decision – which, like the present case, concerned a debt collection service company with a corresponding official permit – the Federal Constitutional Court had emphasized that legal advice, in particular by a debt collection company, basically meant comprehensive and fully-fledged substantive advice to those seeking legal assistance, even if only in a specific subject area specified in the law (such as the extrajudicial collection of receivables by debt collection companies). If the debt collection agency uses the expertise required of it, checked and found to be sufficient, in the collection of third-party claims or claims assigned for collection purposes, it is not recognizable that this could be associated with a danger for the person seeking legal assistance or for legal transactions.

Against the background of the legislator’s objectives and its assessment, which is consistent with the case law of the Federal Constitutional Court, that the authority of registered debt collection service providers encompasses the comprehensive and fully-fledged substantive advice to legal clients in the field of debt collection services, the provisions of Sec. 2 para. 2 sentence 1, § 10 para. 1 sentence 1 no. 1 RDG must be interpreted to the effect that the term “collection service” may not be understood in such a narrow sense as the Court of Appeal did and as is also advocated by some of the courts of instance and the literature.

Rather, within the framework of the protective purpose pursued by the Legal Services Act (Section 1 (1) Sentence 2 RDG), a rather generous view is required in this respect. The examination and consideration carried out on the basis of these standards shows that the activities performed by the plaintiff for the tenant in the present case – even in an overall assessment – (still) qualify as a collection service pursuant to Section 2 (2) of the German Civil Code. 2 sentence 1 RDG and are therefore covered by the permission granted.

This applies both to the use of the “rental price calculator” already used by the customer before the actual commissioning and to the raising of the complaint in accordance with § 556g para. 2 BGB and the request for a declaratory judgment regarding the maximum permissible rent. All measures are closely related to the collection of the claim that is the subject of the “collection order” (namely the recovery of overpaid rents) and serve to realize this claim. They are therefore (still) to be regarded overall as a collection service and not as a legal service in the defense of claims or in the drafting of contracts and general legal advice, to which registration as a collection service provider does not entitle the customer.

BGH surprises with the decision

As the Federal Court of Justice further ruled today, contrary to the opinion held by some of the courts of instance and the literature, the plaintiff’s collection authority cannot be exceeded on the grounds of possible contradictions with the – stricter – professional regulations applicable to attorneys in a comparable case. Admittedly, a lawyer who would have acted for the tenant in place of the plaintiff would in principle not be permitted under professional law to agree a contingency fee with his client (Section 49b (2) sentence 1 BRAO, Section 4a RVG), nor to promise the client an assumption of costs in the event that the collection activity is unsuccessful (Section 49b (2) sentence 1 BRAO, Section 4a RVG). 2 sentence 2 BRAO. However, in view of the special cost and remuneration regulations applicable to the activities of a registered debt collection service provider (Section 4 (1), (2) of the Introductory Act to the Legal Services Act – RDGEG), this cannot be seen as a contradiction of values that could give rise to and justify a narrower view of the scope of the authority to provide debt collection services.

The contrary view fails to recognize that registered debt collection service providers – in contrast to lawyers – are not organs of the administration of justice and that the legislator of the Legal Services Act refrained from establishing registered persons (Section 10 (1) sentence 1 RDG), in particular debt collection service providers, as a legal services profession similar to lawyers below the legal profession and/or from transferring the strict professional duties and supervisory measures applicable to lawyers to these persons without restriction.

Accordingly, the legislator, as can be seen in particular from the provisions of § 4 para. 1, 2 RDGEG and the related statements in the legislative materials, the registered debt collection service providers are exempt from the prohibition norms applicable to lawyers with regard to the agreement of a contingency fee and an assumption of costs. It has also long been recognized in case law – even before the Legal Services Act came into force – that a debt collection agency may agree a contingency fee with its customer, as is also customary in practice.

And further

As the Federal Court of Justice also ruled in its judgment pronounced today, the agreement on a contingency fee and an assumption of costs reached between the tenant and the plaintiff also does not lead to a conflict of interests within the meaning of Section 4 RDG and a consequent inadmissibility of the collection services provided by the plaintiff for the tenant. According to this provision, legal services that may have a direct influence on the fulfillment of another service obligation may not be provided if this jeopardizes the proper provision of the legal service.

The agreed assumption of costs is not an “other service obligation” of the plaintiff within the meaning of § 4 RDG, but rather a component of the collection service to be provided by it for the tenant. Moreover, the contingency fee agreed in the present case, which is based on the amount of rent saved by its activities, gives rise to a considerable interest of the plaintiff’s own in enforcing the tenant’s claims as successfully as possible. The thus – at least to a large extent – existing (in principle) concurrence of the interests of the plaintiff and the tenant is opposed to the assumption of a conflict of interests within the meaning of § 4 RDG.

Since the plaintiff was therefore not charged with a violation of the Legal Services Act in the present case, the assignment agreed between the tenant and the plaintiff was effective. The Federal Court of Justice therefore reversed the judgment of the Court of Appeal and remanded the case so that the findings on the existence of the claims asserted in the action, which had not previously been made, could be made good.