New German Legal Tech Act | Hogan Lovells

On Friday, October 1, 2021, German law to promote consumer-oriented offers in the legal services market [Gesetz zur Förderung verbrauchergerechter Angebote im Rechtsdienstleistungsmarkt – so called “Legal Tech Act”] comes into force. It brings change for lawyers, consumers and the legal technology industry.

On Friday, October 1, 2021, German law to promote consumer-oriented offers in the legal services market [Gesetz zur Förderung verbrauchergerechter Angebote im Rechtsdienstleistungsmarkt – so called “Legal Tech Act”] comes into force. It brings change for lawyers, consumers and the legal technology industry.

In recent years, the German litigation landscape has seen an increase in legal technology offerings that function as debt collection service providers. Offers include, for example, the recovery of claims on the basis of emergency fees, typically resulting from issues such as delayed flights and trains, rent control or defective (mass) product claims . In Germany, the legality of legal technology debt collection models, which ultimately work with commercial litigation financiers, has long been controversial.

German lawyers, on the other hand, have historically been primarily prevented from agreeing on contingency fees or paying their clients’ legal fees, with a few exceptions in specific circumstances. This existing factual “void” of someone especially bearing the cost risk to consumers, for example in areas where the one-off amount in dispute was small in return for part of the gains in the event of success had been recognized and partially met by legal technology companies offering debt collection. services.

As a result of decisive case law, in particular from the German Federal Court of Justice, the new Law on Legal Technology at least clarifies the legality of debt collection models related to legal technology, provides for specific regulations and, in particular, in particular, aims to increase consumer protection in this area. the context.

Background – Need for legal clarity

As legal technology offerings that operate as debt collection providers have gradually moved away from the traditional understanding of the activities of a mere debt collection agency within the meaning of Article 2 of the Services Act legal [RDG – Rechtsdienstleistungsgesetz], the question was asked whether the offerings of these legal technology companies can be considered as debt collection services within the meaning of the Law on Legal Services.

During the years 2019 and 2020, the German Federal Court of Justice answered some of these questions. [BGH, Urteil vom 27.11.2019 – VIII ZR 285/18; BGH, Urteil vom 08. April 2020 – VIII ZR 130/19]. These rulings clarified that Legal Tech companies are not automatically excluded from representing allegedly affected parties and may cooperate with financiers in commercial disputes in certain situations. However, growing demand from consumers and lawyers as well as concerns about the lack of consumer protection demanded clarification of the legality of legal technology companies’ offerings, which led to the new Legal Tech Act.

Legislative Security for the Legal Technology Debt Collection Model and Some ‘Relaxation’ for Lawyers

The new Legal Tech Act incorporates the aforementioned rulings of the German Federal Court of Justice in order to create a clearer framework for providers of collection services.
On the one hand, the New Legal Tech Act strengthens the position of collection providers, because it

  • clarifies the legality of the services provided by collection services even if it includes assessment and legal advice associated with collection;
  • clarifies that collection service providers may cooperate with litigation funders as long as their influence is limited to the passive provision of finance and information rights.

On the other hand, the Legal Tech Act

  • imposes stricter requirements for the registration of a business offering debt collection services;
  • introduces various new disclosure obligations, in particular for consumers, but also for the debtor if he is an individual. Debt collection service providers should, for example, tell the consumer what other means are available to enforce the claim, whether contingency fees have been agreed upon, whether a litigation financier is involved and what has been agreed with them. They must also indicate whether a settlement can only be concluded with the consent of the consumer and whether and under what conditions the settlement can be revoked;
  • foresees an increase in surveillance measures. Authorities now have a clear mandate to shut down legal services they deem to violate the Legal Services Act.

Despite these stricter requirements, companies operating in Germany should be aware that a further influx of debt collection service providers can also be expected in areas of law other than those previously established for themselves by technology companies. legal.

However, some of the planned changes for lawyers, particularly with respect to litigation funding options, which the original draft Legal Tech Act provided for, have not been implemented.

Until now, in line with recent changes provided for in the Final Law on Legal Technology, lawyers can now agree on contingency fees without the need for specific circumstances (I) in court proceedings for claims below EUR 2,000 and (II) when providing an out-of-court collection service, (III) in recovery proceedings or (IV) when providing requests for a declaration of enforceability in enforcement proceedings against movable property for pecuniary claims. In addition, lawyers can, in accordance with the new Legal Tech Act, assume legal costs under limited conditions (recovery procedure and out-of-court debt collection).

In this context, it is necessary to see if and how the lawyers will continue and / or start to cooperate in particular with the external financers of the litigation.

Outlook

Although the new Legal Technology Act has clarified the legality of the legal technology debt collection service model in Germany, the German parliament has called on the federal government to consider whether further adjustments are needed for lawyers. This indicates that the last word, for example on compensation models and the financing of litigation by the lawyers themselves, may not have been said yet.

In addition, the financing of litigation by third parties has recently received special attention at trade union level. In this regard, a first initiative from the European Parliament’s Legal Affairs Committee calls for a regulation via a new European directive.
We will closely follow these developments at German and EU level and keep you informed accordingly.

[View source.]

Source link

About Rochelle Boisvert

Check Also

Broken supply chains threaten ruin at a growing number of small firms, Auto News, ET Auto

One bright side of the distressed drought is that traders who focus on struggling businesses …