22 september 2023, 09:16

The largest number of unfair practices revealed in consumer lending, according to financial ombudsman

A Financial Ombudsman when considering appeals from consumers of financial services reveals various unfair practices on the part of financial institutions in relation to clients, and they are most often found in the area of consumer lending, said Financial Ombudsman Denis Novak, speaking at the 7th All-Russian Legal Forum in Moscow on September 20.

“Practical experience shows that the greatest number of unfair practices are committed not in the area of one of the most common types of insurance – MTPL or hull insurance – but in the area of relations between consumers and credit institutions, i.e. in the area of consumer lending. Apparently, credit institutions are inclined to earn as much as possible from lending to the population, but not only by having the borrowers pay interest on the loan agreement. Credit institutions are trying to find some other ways to get some profit,” the Financial Ombudsman said.

He recalled that earlier the Supreme Arbitration Court had struggled with the practice of recovering funds that were disguised as commissions, but in fact were interest on the loan agreement. “This led to the emergence of such a concept as the full cost of credit, due to which banks are obliged to show the effective rate, so that the consumer understands under what conditions the loan is taken,” Denis Novak added.

Nowadays, the inclination to get excess profit is mainly expressed in sales of various kinds of additional services to the consumer, the Financial Ombudsman continued. “It is clear that in relation to most of these services, the consumer has the right at any time to withdraw from the agreement unilaterally and demand a fee for the unused part of this service. This is assuming that it is not proved that the service has been imposed. If it is imposed and this is proved, the client has the right to demand the full price of this service from the financial institution,” Denis Novak added.

One of the most common additional services offered by banks to borrowers is insurance.

Denis Novak pointed out that in a number of cases, in accordance with the law “On consumer credit (loan)”, the insurance premium under the insurance contract, which is a security contract, in the case of early repayment of the loan is to be returned in proportion to the unused period.

“However, at the conclusion of the loan agreement, the borrower is often offered, ostensibly to reduce the interest rate, to conclude a security insurance contract – usually a contract of personal insurance, which is not as such under the terms of the loan agreement and the interest rate does not actually depend on it. This is explained to the consumer by the fact that if his or her life and health are insured, then in case of problems, for example, with incapacity for work, the insurance will cover the loan debt. But in fact, as it turns out, in most of these cases, the purpose is different, namely: to take some amount for insurance, but when the loan is repaid early, the amount of the cost of insurance for the unused period is not refunded,” the speaker clarified.

Denis Novak also pointed out that the Civil Code contains a rule that in case of early cancellation of the insurance contract, as a general rule, the insurance premium is not refundable, even if it has not been used for the relevant period. “This norm looks very strange as such. For all other services, the consumer has the right, if those services are not used, to return the price, but here it is not the case. Therefore, I would support the proposal of the working group of the Russian Presidential Council on codification and improvement of civil legislation at least in relations with consumers to give the right to unconditionally demand the return of the insurance premium,” the Financial Ombudsman added.

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