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11 october 2023, 13:24
Financial institutions when granting a consumer credit (loan) are obliged to provide the borrower with the opportunity to accept or refuse from any additional services (Part 2 of Article 7 of the Federal Law of 21.12.2013 No. 353-FZ “On consumer credit (loan)”). Such additional services must be listed in the loan application, Financial Ombudsman Denis Novak announced.
“It is not uncommon that financial institutions do not include information about additional services in loan the application and conclude contracts for their provision by making borrowers sign other documents. For example, a consumer in the process of granting them a loan has to sign an application formally unrelated to the loan agreement, for the provision of certain additional services,” Denis Novak pointed out.
Thus, financial institutions, firstly, deprive the borrower of the opportunity to refuse additional services in the loan application. Secondly, based on this procedure for concluding an agreement on the provision of these services, financial institutions subsequently argue that the additional services are not related to the loan (as there is no mention of them in the loan application), which allows them to refer, among other things, to the borrower’s incapability to refuse additional services during the “cooling-off period” due to the fact that the provisions of the mentioned Article do not apply to this situation, the Financial Ombudsman clarified.
This practice is unacceptable, Denis Novak went on to say. The absence in the loan application of any consent to the provision of additional services actually provided simultaneously with the loan indicates the imposition of such services and allows their full cost to be refunded.
“Another of the most striking examples of mis-selling was, as we may remember, the sale of investment life insurance policies under the guise of deposits,” the Financial Ombudsman recalled.
Yet another example of mis-selling, which is very common now in the Financial Ombudsman’s practice, is the so-called “double” insurances. When concluding a loan agreement with the borrower, a security insurance contract is also concluded as a rule, so that in case of certain events that may happen to the borrower, the loan will have to be paid by the insurance company. In this regard, under such contracts, in case of early repayment of the loan, the insurance premium can be returned to the borrower in proportion to the unused period. “However, in practice, financial institutions sell two insurances: secured, but cheap, in order for a small premium to be returned in case of early repayment of the loan, and an expensive non-secured one – a personal insurance contract, for which the premium cannot be returned later in case of early repayment of the loan. Naturally, no one explains these rules clearly to the borrower,” Denis Novak concluded.
