Leasing Companies As Payment Service Providers

Full Service Approach Can Qualify As Money Remittance subject to ZAG

Leasing companies which, due to their full service approach, also provide payment services subject to authorization under ZAG are exposed to considerable regulatory risks. So far, legal regulations on the potential conflict between the KWG and the ZAG in the leasing sector do not exist.

According to current legislation, leasing companies can be threatened with double supervision under the German Banking Act (“KWG”) and the German Payment Services Supervision Act (“ZAG”). In its current administrative practice, the German Federal Financial Supervisory Authority (“BaFin”) often refrains from implementing double supervision. However, there are legal uncertainties regarding both the scope and the future existence of this administrative practice of BaFin.

Full-Service Mobility Management as a Modern Leasing Business

Competition on the leasing market is increasing. Cars and trucks represent about two thirds of the leasing market. In these areas, there is a trend towards operational leasing, in which the leasing relationship is supplemented by a variety of other services. Service offers range from accident management and rental car service over regular maintenance, tire service and driver information to the sale of used vehicles. The leasing business expands into a full-service mobility management.

Payment Services are an Integral Part of Operational Leasing

Many of these additional services could qualify as money remittance service pursuant to Sect. 1 par. 1 sentence 2 no. 6 ZAG and thereby result in payment services according to the ZAG, which would require authorization by BaFin. For example, payments are carried out by the leasing company and usually subsequently settled between the lessor and the lessee. Thus, payment services are an integral part of modern leasing business.

BaFin’s Administrative Practice Exception Quickly Reaches Its Limits

BaFin's current administrative practice refrains from supervising leasing companies which are already supervised under KWG, additionally pursuant to the ZAG, with regard to their payment services. However, this exception only applies to payment services in connection with the use of the leasing object (so-called annex activity). Within the framework of full-service mobility management, however, this limitation is reached very quickly. The customer does not approach "his fleet manager" only to leasing vehicles, but often also for topics regarding his general equipment situation. The leasing company then e.g. rents a rental vehicle on behalf and for account of its customer to bridge a short-term additional demand and, furthermore, also processes the corresponding payments without any reference to a leasing object. In addition, comprehensive mobility management is initially offered in particular as part of new customer acquisition: Leasing contracts are foremost concluded in a second step. If this can still be seen as – activity in connection with the leasing object, as required to benefit from the BaFin exception is unclear. The exception of the BaFin’s administrative practice could be exceeded here.

Consequences of Double Supervision

The main aim of BaFin's administrative practice is to avoid double supervision of leasing companies under KWG and ZAG. Double supervision would entail considerable additional efforts for the companies in variousareas. This becomes especially obvious with regard to the balance sheet. The balance sheet would have to be prepared according to both the German Ordinance regarding the Accounting System for Banks (“RechKredV”) and the German Ordinance regarding the Accounting System for Payment Institutions (“RechZahlV”), which contain partly inconsistent legal provisions.
The question of parallel handling extends through to the annual audit. In addition to facilitating the supervisory situation for companies, BaFin also avoids an internal competence problem. It is not necessary for BaFin to decide whether its banking or its payment services department is competent.

Avoidance of Double Supervision Has No Legal Basis

The avoidance of double supervision is certainly desirable in every respect. However, there is currently no legal basis for an exception from the authorization requirement under ZAG. In other constellations, the legal relationship between objects of supervision is explicitly regulated. For example, Sect. 32 par. 6 KWG with regard to financing factoring provides that a payment institution holding a ZAG authorization does not require an additional KWG authorization. This concrete exception is justified by the fact that the supervisory requirements of the ZAG significantly exceed those stipulated in Sect. 1 par. 1a sentence 2 no. 9 KWG, which apply to a sole factoring institution. Due to this special reasoning, the provision of Sect. 32 par. 6 KWG is not suitable for a legal analogy. Therefore, a general principle of avoiding double supervision cannot be inferred.

Different Legal Regulations Conceivable

Due to the legal uncertainty, it is very likely that the legislator will regulate the case of double supervision for leasing companies. Various legal regulations are conceivable:

  • An extension of the list of exceptions to the definition of payment services in Sect. 2 par. 1 ZAG would be conceivable. Number 8 of the given list already excludes payment transactions “related to securities asset servicing”. A comparable exception would also be conceivable with regard to payment transactions related to leasing business or leasing objects. This design would be very close to BaFin’s administrative practice, as it would ensure the character of an "annex activity". However, this design would still not cover the issue of additional services that are not directly related to leasing objects. 
  • It would also be possible to include leasing companies in the payment service provider catalogue of Sect. 1 par. 1 sentence 1 ZAG and at the same time exclude an authorization requirement by a correspondingly extended exception reference in Sect. 10 par. 10 sentence 1 ZAG and Sect. 11 par. 10 sentence 1 ZAG. However, this design appears to be rather unlikely, as the regulatory requirements for leasing companies under KWG fall short of those for payment service providers under ZAG. In addition, in the context of such a design, the privilege in Sect. 19 par. 4 of the German Ordinance regarding the Implementation of Trade Tax would have to be adjusted.
  • From a systematic point of view, it would be consistent to place leasing companies with a focus on payment services entirely under supervision of ZAG and to exempt such companies, alongside factoring companies, from the KWG authorization requirement by correspondingly supplementing Sect. 32 par. 6 KWG. Similar to factoring companies, the regulatory requirements for sole leasing companies under KWG are significantly lower than those for payment service providers under ZAG.
Regulatory Backlog for Leasing Companies

In view of the uncertain legal situation, KWG-only leasing companies should pay special attention to the ZAG authorization requirement for their additional services. This particularly applies for payment services which are provided independently of leasing objects. In this respect, BaFin and the annual auditors are becoming increasingly sensitive. For the necessary legal assessment, a detailed differentiation and examination of the services, which are often bundled as an overall package, is indispensable.

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