ECJ Decision: The end of the Germany’s darling SEPA direct debit?

The ECJ ruled on 5 September 2019 (Case C-28/18) that the acceptance of payments via SEPA direct debit by companies shall not be made conditional to the customer's place of residence.

The current ruling of the European Court of Justice (ECJ) could have far-reaching influence on the SEPA direct debit payments which are very popular in Germany. In a legal dispute, the Austrian Association for Consumer Information (Verein für Konsumenteninformation, VKI) attacked a contractual clause in the general conditions of carriage of German rail transport company Deutsche Bahn. The acceptance of SEPA direct debit payments of train tickets was limited to customers living in Germany. An action brought by the VKI against Deutsche Bahn, concerning an application for an order prohibiting the above clause, was ruled by the Austrian Commercial Court in Vienna.

The proceeding

The VKI argued that this clause infringes the SEPA direct debit-Regulation (Regulation (EU) No. 260/2012 (SEPA-Regulation)). According to the SEPA-Regulation, when using a direct debit to collect funds from a payer, a payee may generally not specify in which Member State the payer's payment account is to be located. The legal disputes went through to the Supreme Court of Austria. The Supreme Court of Austria stayed the proceeding and referred to the ECJ the question whether the SEPA-Regulation should be interpreted as prohibiting payees from making the acceptance of SEPA direct debit payment subject to the payer's place of residence in the Member State in which also the payee is established, even if other payment options (such as credit cards) are allowed.

Decision of the ECJ

The ECJ ruled that the SEPA-Regulation precludes such a contractual clause. The payment by means of a direct debit, which is expressed in euro and carried out via the existing SEPA direct debit scheme in the European Union, may not be excluded if the payer is not located in the Member State in which the payee is located (established). As one of the reasons for its decision the ECJ states that such a clause exclude the payer’s possibility of having a direct debit from an account held in a Member State of their choice. This impairs the freedom to keep one account for all payment transactions within the EU and thus conflicts with the aims of the SEPA-Regulation. Therefore, the payees are free to choose whether they allow the payer to pay by SEPA direct debit, but if they offer this payment method, they may not make it subject to the residence in their territory.

What does that mean for the future?

Companies can continue to offer the SEPA direct debit as a payment method. If they do offer, then they must not differentiate between customers with different residences, but rather must, in principle, allow all customers in the EU to pay by SEPA direct debit.

Companies have tried to reduce the risk of misuse and payment default through domestically limitation. The decision of the ECJ could now bring unpleasant consequences regarding the credit rating. An appropriate credit rating is much more expensive in other countries than in Germany. It might become unattractive for German companies to offer a SEPA direct debit if it cannot be restricted to Germany. Companies which currently offer SEPA direct debit as payment method should reconsider their strategy of offered payment methods.

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