The German Federal Cabinet has approved significant changes to consumer credit laws, aiming to modernize regulations for the digital age. On Tuesday, September 2, 2025, the government passed legislation to implement EU Directive 2023/2225. The new rules significantly expand the definition of what constitutes a credit agreement.
These changes target modern financial products that were previously in a legal grey area. Specifically, the legislation brings „Buy Now, Pay Later“ (BNPL) schemes and small loans under 200 euros into the scope of regulated consumer credit. The move is designed to protect borrowers from hidden risks and potential debt spirals associated with easy-access financing.
Closing Loopholes in the Credit Market
Previously, German consumer credit law applied primarily to larger loans with longer terms. Niche financial products often escaped strict regulatory oversight. The new legislation closes these gaps to ensure uniform standards across the European single market.
Regulation of Mini Loans and BNPL
One of the most impactful changes is the inclusion of small-scale financing. Until now, loans under 200 euros were often exempt from stringent consumer protection requirements. This exemption allowed the market for the mini loan germany sector to operate with fewer disclosure requirements than traditional bank loans.
Under the new law, these small loans are subject to the same transparency rules as larger financing agreements. This also applies to interest-free loans and loans with terms of less than three months. Furthermore, the booming „Buy Now, Pay Later“ sector faces stricter regulation. These payment options, frequently offered at online checkouts, must now adhere to standard creditworthiness checks and information duties. The government aims to prevent consumers from accumulating unmanageable debt through multiple small, unregulated obligations.
Modernizing Contract Procedures
The legislation also addresses the administrative burden associated with taking out a loan. In a move towards digitalization, the requirement for a handwritten signature on paper—known as the „written form“—is being relaxed for general consumer loans.
Shift to Text Form
Future general consumer loan agreements can be concluded using „text form.“ This legal standard allows for contracts to be finalized via email or other durable digital mediums without a wet-ink signature. This change simplifies the process for consumers seeking credit in germany, allowing for faster processing times and fully digital workflows.
However, to balance this ease of access, the government has expanded pre-contractual information duties. Lenders must provide clearer, more comprehensive details about the costs and risks involved before a consumer clicks to accept a loan.
Legal Certainty and Interest Rate Caps
Beyond expanding the scope of regulation, the new law codifies specific protections regarding interest rates and contract revocation. These measures provide clarity for both borrowers and lenders.
Capping Usurious Interest Rates
The legislation introduces statutory limits on interest rates to prevent usury. While German courts have previously established objective limits for what constitutes „sittenwidrig“ (immoral) interest rates, these limits are now anchored directly in the statute. This provides a clear legal baseline, making it easier for consumers to identify and challenge excessive charges without relying solely on case law interpretation. Consumers utilizing a loan calculator germany will have greater assurance that the rates offered fall within legally permissible boundaries.
End of the „Eternal Withdrawal“ Right
A significant change for the banking industry is the limitation of the so-called „eternal right of withdrawal“ (ewiger Widerrufsjoker). Previously, if a credit contract contained minor errors in its mandatory information, consumers could revoke the contract years later.
The new law introduces a hard cap. The right to revoke a contract due to erroneous information will now expire, at the latest, twelve months and 14 days after the contract is concluded. This change aims to create legal certainty, preventing revocations from occurring years after the money has been disbursed and spent.
AI and Automated Credit Decisions
The modernization of credit law also touches upon the use of technology in assessing borrowers. As financial institutions increasingly rely on algorithms, the government has introduced safeguards regarding automated decision-making.
If a creditworthiness assessment involves the automated processing of personal data, consumers now have the right to a human review. This ensures that individuals are not denied financing solely based on an algorithm’s calculation. This is particularly relevant for consumers concerned about how automated systems view their financial history, such as those seeking a loan without schufa or similar credit checks. The human review provision allows applicants to contest automated rejections and provide context that a machine might miss.
Implementation of EU Standards
These national changes are part of a broader European effort. By transposing the EU Consumer Credit Directive into German law, the federal government ensures that German consumers enjoy the same high level of protection as their neighbors. The harmonization of these rules is intended to foster a more transparent and competitive internal market for financial services across the European Union.
The law also includes necessary adjustments to competition law, trade regulations, and price indication ordinances to align with the new credit standards.
Sources
Source: https://www.bundesregierung.de/breg-de/aktuelles/schutz-kreditvertraege-2382528
