1. European Court of Justice rules on withdrawal rights regarding vehicle financing and leasing

In a judgment released on 21 December 2023, the European Court of Justice (“ECJ”) further clarified the requirements for consumer withdrawal rights in connection with vehicle credit and leasing agreements.

The ECJ ruling came in response to three cases originally brought before the district court of Ravensburg, Germany, involving various captive banks that had financed the purchase or the lease of vehicles. In one case, a consumer had entered into a vehicle leasing agreement while on the premises of a car dealership after discussing the contract in detail with a dealership employee. In the other two cases, a car dealership had brokered the financing agreements between the captive bank and consumers. In all three cases, the consumers withdrew from their contracts months or years after they had been concluded, in one case even after the loan had already been repaid in full, claiming that they had not been properly informed of their rights.

The ECJ has now ruled that even if a leasing agreement with mileage allowance was to be considered a “distance contract” or an “off-premises contract”, the exception from the right of withdrawal relating to car rental services coupled with a specific date or period of performance can also apply to leasing agreements with a duration of 24 months where the main purpose of that agreement is to allow the consumer to use a vehicle for the specific period of time stipulated in that agreement, in return for the regular payment of sums of money. Therefore, regardless of how such a leasing agreement is concluded, consumers would never have a right of withdrawal (see sec. 312g para. 2 no. 9 German Civil Code (“BGB”)).

In its reasoning, the ECJ emphasised that the customer had customised the leased vehicle and pointed out that, in the event of a withdrawal, the bank might not be able to put the vehicle to another equivalent use for the originally planned leasing period. It is therefore not entirely clear whether the ECJ’s decision also applies to leases of pre-configured (or even used) vehicles. The EU Directive 2011/83 which sets out the exception for vehicle rentals does not specify that the exception only applies to vehicles specifically customised for the lessee.

Helpful for other scenarios is the ECJ ruling on a right of withdrawal for contracts concluded as a “distance contract” because they are only concluded by means of “distance communication” (see sec. 312c BGB). The ECJ ruled that even if a leasing contract is concluded by means of distance communication, it is not to be considered a distance contract if it is preceded by negotiations during which the consumer and someone acting on behalf of or in the name of the (captive) bank, such as in the present case the dealership’s employee, were both physically present and negotiated and shared information in relation to the contract, including with respect to key elements such as duration and monthly payments were discussed.

While the lease agreement was therefore not a “distance contract”, it could have been an “off-premises contract” (see sec. 312b BGB). In its judgment, the ECJ clarified that where a contract is concluded on the premises of an intermediary acting in the name of or on behalf of a bank, it is not concluded “off-premises”, provided that the consumer, as an average consumer could have expected to be solicited by that intermediary for the purposes of the negotiation and conclusion of a contract with the bank and provided that such consumer could also easily have understood that the intermediary was acting in the name or on behalf of that trader.

For financing agreements, the ECJ ruled that consumers can exercise their right of withdrawal even months after the conclusion of the contract if they have not been properly informed of their rights. However, consumers cannot exercise their right of withdrawal once the loan has been repaid in full.

Relevant for: Finance providers, manufacturers.

Further details here (in English).

2. German government abruptly stops subsidies for electric vehicles

In a move that came as a surprise to many, the German government has ended subsidies for electric vehicles. On 16 December, it was announced that the last day to apply for subsidies would be the following Sunday, 17 December as the funds allocated for the subsidy would not be replenished.
Previously, the German government had offered electric vehicle holders a subsidy of up to EUR 4,500, depending on the sticker price of the vehicle. The subsidy was originally scheduled to continue in 2024. Because vehicle registration was a prerequisite for receiving the subsidy, consumers had to first purchase or lease a vehicle before they could apply for and receive the subsidy. In most cases, vehicle holders bear the risk of not being able to reclaim the subsidy under their lease or finance agreements.

Following the abrupt end of the subsidy, many OEMs have announced that they will reimburse their customers for the subsidy in 2023.

Relevant for: Manufacturers, finance providers, mobility providers.

Further details here (available only in German).

3. EU reaches political agreement on Artificial Intelligence regulation

The European Union has reached a political agreement on a landmark bill to regulate artificial intelligence. After intense debate, the so-called “trilogue” between the European Commission, the Council and the European Parliament has reached a political agreement on the content of the bill. This agreement will now be translated into legislation.

The intention behind the AI Act is to regulate artificial intelligence based on the potential of each category of AI to cause harm. One of the most heavily debated aspects of the bill was biometric surveillance. The use of this technology will now to be allowed for the targeted identification of individuals on a case-by-case basis when there is an imminent threat to life and limb. The subsequent use of biometric data collected in public spaces is generally permitted.

The definition of artificial intelligence used in the bill was debated until the very last minute. It now defines AI as a “machine-based system that generates results such as predictions, content, recommendations or decisions from inputs for explicit or implicit goals that can have an impact on physical or virtual environments,” which is broader than some of the alternative proposals. The AI Act is expected to have an impact on the entire lifecycle of vehicles, including with respect to autonomous driving and even after-sales services when AI is used to determine maintenance intervals, for example.

The trilogue will now finalise the details of the regulation which is expected to take about two months. After that, the general guidelines will have to be converted into standards that can be applied in practice. This is expected to take one to two years. According to the provisional agreement, there will be a two-year period after the entry into force of the AI Act before it is applied.

Relevant for: Manufacturers.

Further details here (in English).

4. European Parliament endorses “Right to Repair” legislation

On 21 November, the European Parliament endorsed by a large majority a draft law on the “right to repair”.

Under the proposal, consumers will have the right to request repair of products such as washing machines, vacuum cleaners, smartphones and bicycles after the warranty has expired. Online platforms are envisaged to be set up to help consumers find local repair shops. The legislation also aims to make all spare parts available to independent repair shops, refurbishers and end customers at a reasonable cost to encourage the repair of goods.

As already mentioned in our November update, motor vehicles are – contrary to the original proposal – not included in the scope of the proposed legislation.

As the next step, the parliament will negotiate the proposal with the Council.

Further details here (in English).

5. EU reaches agreement on broad Supply Chain Act

The Council and the European Parliament reached a provisional agreement on the Corporate Sustainability Due Diligence Directive (“CSDDD”) on 14 December 2023. The CSDDD aims to improve the protection of both the environment and human rights around the world. It sets out obligations for large companies to mitigate the risks in this area, both in their own operations, with respect to their subsidiaries and also in relation to their supply chain.

The CSDDD applies to companies with more than 500 employees and a worldwide net turn-over of more than EUR 150 million. Non-EU companies may also fall within the scope of the CSDDD if their net turnover generated within the EU exceeds EUR 150 million. The CSDDD will also apply to smaller companies in certain sectors such as mineral resources, construction and agriculture. To ensure full transparency, the EU Commission will publish a list of all non-EU companies to which the CSDDD applies.

While the CSDDD will facilitate civil liability claims brought forward by those affected by climate change, it will also provide for fines up to five percent of a company’s net turnover for violations.

The provisional agreement between the Council and the European Parliament must now be endorsed and formally adopted by both institutions.

Relevant for: All companies.

Further details here (in English).