By Angelique Ruzicka, editor, Justmoney
The National Credit Regulator (NCR) has referred Finbond Mutual Bank to the National Consumer Tribunal for charging consumers for what it claims are excessive credit life insurance premiums. “We conducted an investigation [after] we received information from someone in the financial sector industry about their [Finbond’s] credit life insurance premiums,” said Lesiba Mashapa, company secretary for the NCR.
The NCR issued a short statement on the referral today, adding that Findbond will be ordered to refund all affected customers and that it will have to pay an admin fine if it is found guilty by the tribunal. It would not be led into giving an estimate on how much the fine could be but Mashapa said that if the tribunal ordered a refund it will be a portion of the premium that is above the average industry premium (less than R10 per R1000 loaned).
The NCR said that Finbond was charging customers over and above the industry norm. “We looked at the average industry premium. It’s R10, or less, per R1000 loan. We looked at premiums charged by other credit providers in the sector and their loss ratio and they all came out very low. In one example, Finbond charged a premium of R136 for a two month loan with a capital value of R1000. So [they were charging] R136 per R1000. There are more examples but I can’t divulge the numbers further,” said Leshapa.
Leshapa said other financial institutions were being investigated too but refused to divulge any more details.
What is credit life insurance?
Lenders often get customers to take out credit life insurance when they borrow money. The product is designed to pay off the borrower's loan in the event that the borrower dies. This product can be sold to customers for a short term or long term loan.
Often, companies insist that customers take out the credit life insurance that they are punting, adding that consumers would need to get a product with the same terms and conditions if they did want to shop around. This often makes it difficult for customers to come up with a similar quote from another provider.
Often, this [shopping around] is deemed too much effort for the consumer and the consumer capitulates and signs up for the loan and credit life insurance product.
Credit life insurance and the sale thereof is not bad or illegal, but lenders and in particular, some micro lenders, have been criticised in the past about how they force the product onto their clients and charge over the industry norms. Usually, customers are not informed about the fact that they are entitled to shop around for a cheaper product.
Credit life insurance uproar abroad
The mis-selling of credit life insurance or payment protection insurance has caused an uproar in the United Kingdom. Industry commentators warned about PPI being missold to customers as far back as 2000.
PPI was surrounded in controversy as customers didn’t understand the cover, weren’t informed about other products on the market and also, when it came to claims stage, were often rejected.
Commissions for the number of PPI products sold to customers were also a bone of contention and it was argued that there were conflicts of interest when PPI was sold to customers.
Thousands of customers have since been encouraged to make back-claims on PPI in the UK. According to consumer and personal finance guru, Martin Lewis over £17 billion (R328.87 billion) has been reclaimed for missold PPI insurance. He explains how to make claims on his website without the help of a PPI claims handler, who typically charges 30% (of the winnings) for his/her services
It appears that, for now, South Africa is only scratching the surface when it comes to credit life insurance misselling. If you think you’ve been missold credit life insurance contact the NCR.
*Justmoney has contacted Finbond for a comment but at the time of publishing the firm could not be contacted.