30 march 2023, 11:04

Financial Ombudsman reveals new unfair practices by financial institutions in granting loans

In reviewing consumer complaints, the Financial Ombudsman continued to identify unfair practices on the part of lending institutions related to the conclusion of a loan agreement and the simultaneous conclusion of an insurance agreement.

Typically, when entering into a contract for a consumer loan, the bank offers additional services, as a result of which the consumer becomes an insured person under a contract of collective life and/or health insurance of the borrowers, Financial Ombudsman Tatiana Savitskaya elucidated.

In some cases, in accordance with the terms of the collective life and/or health insurance contract entered into by the bank as the insurer (borrowers are included in such contract as insured persons), the number of beneficiaries includes the bank (which actually has the status of the primary beneficiary), as well as the borrower himself and/or his heirs who are entitled to receive an insurance payment only after the credit institution receives the insurance payment in the amount required for full repayment of the loan.

In practice, the Financial Ombudsman has encountered situations where lending institutions, in the case of rejection of the consumer from such insurance contract in connection with the full early repayment of the loan agreement (after the \ “cooling-off period”), deny the return of the insurance premium, including the insurance premium for the “unused” period of insurance, as well as the relevant part of the bank commission for joining the borrower to the insurance programme, Tatiana Savitskaya noted.

In such cases, banks point out that the insurance contract is not a security, because it does not meet the requirements of Part 2.4 of Article 7 of the Federal Law No. 353-FZ “On consumer credit (loan)” (hereinafter Law 353-FZ)*.

A resident of Moscow Region, who had taken a loan from a bank worth 428,300 roubles for two years, applied to the Financial Ombudsman. On the day the loan agreement was signed with the borrower, an insurance agreement was also signed (participation in the collective voluntary life and health insurance programme), the connection fee amounted to 28.3 thousand roubles. The money for the fee was debited from the account that had been opened for the bank customer to extend the loan.

Three months after an early repayment of the loan, the borrower applied to the bank for withdrawal from the collective voluntary insurance programme and return of the money paid for connection to the insurance programme due to the early repayment of the loan agreement. The bank informed the client that the refund is only to be made within 14 days of the service being arranged (the “cooling-off period”).

The Financial Ombudsman stated that since the borrower or a person deemed to be a close relative is not entitled to claim insurance benefits in their favour until the loan is fully repaid and therefore they cannot be treated as beneficiaries, the main beneficiary under such an insurance contract is the lending institution.

Consequently, the fee paid by the borrower for participation in the insurance programme under a personal insurance agreement in which the bank is named as the primary beneficiary must be included in calculating the full cost of the loan by virtue of Article 6 Part 4 of Law 353-FZ, and the insurance contract itself, subject to the provisions of Article 7 Part 2.4 of Law 353-FZ is a security, in which connection the bank was obliged by virtue of Article 11 Part 10 of Law 353-FZ to refund the insurance premium less the amount of money proportional to the time during which it had been insured.

With regard to the bank’s service of subscribing the borrower to the insurance programme, the Financial Ombudsman found that the provision of this service must result in insurance cover for the borrower for the duration of the loan agreement and that in the event of cancellation of insurance cover due to early full performance of the borrower’s obligations under the loan agreement, the fee paid for subscribing to the insurance programme shall be refunded in the amount paid for the period when the borrower was not subscribed to the insurance programme any longer.

*Since, depending on the conclusion of the insurance contract, different conditions of the consumer loan (credit) agreement are not offered, including in terms of the consumer loan (credit) repayment period and/or the full value of the consumer loan (credit), in terms of the interest rate and other payments included in the calculation of the full value of the consumer loan (credit) and, despite the fact that the beneficiary under the insurance contract is the creditor who receives the insurance payment in case the borrower cannot meet their obligations, the sum insured under the insurance contract is not subject to recalculation in proportion to the debt under the consumer credit (loan) contract.
 

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