D: UPDATE: Controversial Legal-Tech Act passed

Jun 30, 2021 Benn-Ibler Rechtsanwälte

On June 10, 2021, the Bundestag (Lower House of the German Federal Parliament) passed the controversial "Legal-Tech Act" (Act to Promote More Consumer-Friendly Offerings in the Legal Services Market). It provides for contingency fees for lawyers and improved consumer-friendly regulations for debt collection service providers.

The Act mitigates contradictory regulations in the areas of contingency fees and the financing of legal costs of debt collection service providers and attorneys, thereby creating a coherent regulatory structure in line with European requirements.

For the first time it will be allowed that lawyers can finance legal costs in the areas of out-of-court debt collection and judicial dunning proceedings. In other areas, this remains prohibited. The advantage of permitting such financing lies in the significant reduction of the cost risk for legal claimants and thus the significantly better access to justice and consumer protection for the public at large.

Equality is also to be achieved through the possibility of a contingency fee (the amount of the attorney's fee depends on the success that the attorney has been able to achieve). Until now, in general a contingency fee could be agreed only if the client would otherwise not be able to obtain legal advice due to his or her financial circumstances, section 4a RVG (Lawyers' Remuneration Act).

The draft provides the possibility of asking a contingency fee in cases of judicial and extrajudicial mandates for monetary claims which do not exceed EUR 2,000, extrajudicial debt collection, judicial dunning and enforcement proceedings.

Furthermore, consumer protection is to be improved by increasing the transparency and thus the understandability of the legal-tech debt collection business model. Collection service providers must specify ancillary services more precisely, section 13 (2) RDG. In this respect, the term "debt collection" has been redefined in section 2 (2) RDG. Collection service providers will have specific information obligations in the area of consumer debt collection. Supervisory authorities will also be able to carry out a preliminary check as to whether the intended activity is compatible with a registration as a debt collection service provider.

The draft met with much resistance, as many legal issues remain unresolved, including, for example, when can assignments be based on collection licenses and thus whether the Austrian model of class action would be permissible in Germany.

BR-Drucksache 58/12 (22.01.2021)