Online hire purchase

A large number of different payment methods are often available to consumers in e-commerce. While means of payment such as direct debit, credit card or online payment services such as PayPal or Klarna have already belonged to the standard portfolio for some time, offering hire purchase in e-commerce is by comparison not as widespread in practice. According to a recent study published by ibi research on “Hire purchase in e-commerce”, this payment method is, however, on the rise.

The increasing significance of this payment method and the extremely complex structure of the applicable provisions in this area of law mean that a closer look needs to be taken at the basic legal requirements governing online hire purchase. Our lawyers Dr Tom Billing and Bärbel Milsch have therefore taken a detailed look at this issue. The results of their considerations have been published as an article in the journal NJW 2015, p. 2369 ff., which besides the basic principles governing instalment payment transactions set out in Section 507 of the German Civil Code, in particular deals with the following issues which are of practical relevance:

• Obligations of the online entrepreneur with respect to hire purchase (information and disclosure obligations, withdrawal instructions and credit checks);
• special rights relating to distance selling (easing of formal requirements pursuant to Sec. 507 (1) sentence 2 of the German Civil Code and assignment structure);
• legal consequences of breaches of formal requirements; and
• the premature termination of the hire purchase transaction (withdrawal/termination by entrepreneur and early repayment by consumer).

One practical challenge in this respect is above all the in some cases unclear comprehensive statutory obligations to inform consumers, in particular with respect to their right of withdrawal. Online traders who are considering including hire purchase as a payment option in their online shops should be aware of these potential pitfalls. In order to make this integration process easier, online traders also have the possibility to cooperate with specialised payment service providers, some of which offer almost complete solutions. A number of things, however, also need to be observed when drafting the corresponding cooperation agreements.

If you would like more detailed information on online hire purchase or practical and innovative advice on this issue, please contact us directly or send us an e-mail. We are also available to answer any other questions you may have on the issue of e-commerce or distribution law.

These articles may also be of interest to you: Three issues of practical relevance regarding SEPA direct debits; Capping of credit and debit card fees.