26 june 2024, 15:00

Chief Financial Ombudsman Yury Voronin speaks at the session “Unfair Practices in the Consumer Market”, held as part of the 12th SPILF

A session of the Russian Federal Service for Supervision of Consumer Rights Protection and Human Welfare “Unfair practices in the consumer market” was held within the 12th St. Petersburg International Legal Forum (SPILF), at which the Chief Financial Ombudsman spoke. Yury Voronin revealed that in 2023 about 300 cases of unfair practices in the activities of financial institutions had been identified.

He noted that it had been several years that the Financial Ombudsman Service (FOS) had been carrying out systematic work to identify unacceptable practices used by financial institutions in their interaction with consumers of financial services. According to Yury Voronin, “unfair practices are not always a violation of the law as such, but as a rule - it is a foul play. There is either dishonest lack of informing for the consumer, or misinformation about the consequences of purchasing a financial product from a financial institution”.

In this regard, he said there is a major flaw in the absence of a direct provision in the law that would oblige a credit organisation to make an audio recording of the contact with the consumer.

The Chief Financial Ombudsman said that currently most of the unacceptable practices identified by the FOS (more than 80 per cent of cases in 2023) were coming from credit institutions. At the same time, they can also be found in the insurance market.

The main number of unacceptable practices of banks is related to consumer lending, and in particular to the sale of additional services (including insurance) and goods at the conclusion of a consumer credit (loan) agreement.

First of all, credit organisations charge disproportionate fees for ”connecting” borrowers to collective personal insurance contracts concluded between lenders and insurers.

Such insurance contracts are offered to consumers when granting them a loan, and often the fact of having an insurance contract affects the loan rate. The consumer (borrower) “joins” the contract as an insured person.

Accordingly, the fee for “connection” consists of the amount of the insurance premium transferred by the credit organisation to the insurer and the commission of the credit organisation for “connection”. At that, the amount of such commission may exceed the insurance premium paid by the bank to the insurer for the insurance of the borrower being “connected” by up to 10 times. Moreover, the amount of the fee is usually included in the loan amount, i.e. the borrower pays for insurance at the expense of loan funds.

In one of the appeals, when receiving a loan in the amount of 1,781,000 rubles, the service fee for connection to the insurance programme was 369,764 rubles 88 kopecks (i.e. 20% of the loan amount), while the insurance premium to be paid by the credit institution to the insurer was only 13,089 rubles 28 kopecks. He noted that it is still impossible to eliminate such practice at the level of law enforcement.

Another common unacceptable practice identified by the Financial Ombudsman is offering a consumer at the conclusion of a consumer loan agreement a “package of additional services”, which includes a service (for example, access to information services) and a product – a non-periodical electronic publication on a flash card, which is a manual for operating an ATV or a snowmobile.

If the consumer refuses to purchase the “package of additional services” during the “cooling-off period”, the part of the payment made by the consumer, which is attributable to the cost of the electronic publication, is not refunded with reference to the fact that such goods are included in the list of non-food products that are not subject to exchange (return). As a result, the consumer receives only an insignificant part of the money paid.

Unfortunately, the provisions of the current legislation do not allow to completely exclude the risk of abuse by creditors and third parties. In particular, because the borrower’s statutory right to refuse goods arises only if such goods have not been used. However, if the goods are non-periodical electronic publications, including those recorded on a flash drive, as in the example described above, there are no criteria for the “use” of such goods in the law and court practice.

Another example of unacceptable practice, also aimed at circumventing the provisions of the legislation that give borrowers the right to refuse additional services, is the practice of selling services through assignment of claims.

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