Progress is sometimes a snail. Last week, the Bundestag decided that in future customers should pay significantly lower commissions when purchasing residual debt insurance. This sometimes happens when customers can no longer pay the loan down payment. In fact, most of this insurance is meaningless and should rarely be sold. MPs could have done this with smart rules. Now, as a consumer, you have to help yourself.
Residual loan insurance – sold with an installment loan for a kitchen or a car – has been a nuisance to many consumers for more than two decades. Because such insurance often doubles the cost of an installment loan. Most of these costs are spent on insurance brokerage commissions. That’s up to 70%, as the financial supervisory authority Baffin determined a few years ago.
How insane this trade is to consumers is easily understood by one case. During a financial crisis, a Bavarian tax official was sold residual debt insurance from a car dealership when he bought his car – to save him from unemployment (for a civil servant!). Unnecessary cost for the poor: 1716 euros.
The comparison of interest rates and insurance premiums for a EUR 10,000 installment loan is also impressive. Insurance generally costs more than interest.
Insurance rarely comes into play by the opposition FDP faction in a small claim from the federal government: only 0.2 percent of all insurance contracts have been paid. We don’t know how high it is.
Consumer advice centers, united in the ‘Coalition Against Usury’, regularly report very frightening cases in which a large installment loan, as well as the high cost of unnecessary residual debt insurance, has wrecked debt. consumers. .
There was no point in toughening the law earlier: since February 2018, a week after the bank took out insurance, consumers have been told they can also cancel residual loan insurance if they don’t want to. not. It didn’t help much. Baffin was not able to determine a slight increase in the withdrawal rate until the following year.
The Grande Alliance has now decided that from July 2022, the commission for brokerage residual loan insurance for banks will be capped at 2.5% of the loan amount. This means: Residual debt insurance, which protects a loan of 10,000 euros, cannot cost clients more than 250 euros in agency fees. Until now, the normal amount was 500 euros, and a commission of 1000 euros was also occasional. The new regulation aims to prevent banks and car dealerships from selling residual debt insurance – as before – mainly to collect commissions on large commissions.
The find isn’t exactly new, but at least it’s now a government official. The problem of residual debt insurance has actually been known for over a dozen years.
Some banks have moved away from the product for a long time. ING stopped selling years ago. With careful loan calculators, banks that offer such insurance in advance as part of a loan program are done away with.
The new law should at least make this unnecessary business more difficult. Unfortunately, not until summer 2022. A UK version of the dry regulation would have been much easier than getting around the capped commission:
In Britain, the Financial Conduct Authority has ruled that residual debt insurance cannot be sold for at least a week after signing the loan agreement – so that the customer does not feel that the loan is will not exist without insurance. If the seller gives the impression that such insurance will make the loan cheaper, the contract immediately becomes void.
In addition, contracts are prohibited in the UK where the customer has not been able to obtain the corresponding insurance cover. The sale of such contracts to students or retirees is considered an abuse. Selling residual unemployment insurance to a civil servant would certainly not have been allowed.
And it’s not just the fault that the British authorities have banned. He also ordered the withdrawal of these illegal contracts. UK consumers have repaid more than Â£ 38 billion in payment protection payments from their banks and insurance companies over the past decade. Recently, around 90 percent of customer complaints were approved. The major UK banks have repaid billions of dollars far more than the profits they have made over the past decade.
What can you do yourself
After reading this, you usually won’t get new residual loan insurance when buying your next used car or financing the kitchen. But what about your potentially old contracts?
There is also a remedy:
If you’ve just purchased residual loan insurance, such as when buying a new electric car, you can usually cancel it for 30 days. The withdrawal period only begins when you have been informed in writing of your right of withdrawal and have received a product information sheet with all the details about the insurance. A sample repeal letter is available here.
Sometimes you can get rid of a contract with a loan. The withdrawal period also applies to these loans. And here the rule also applies that the bank must have correctly informed you about the product and the cancellation options. Quite often the banks have not. The Consumer Center Hamburg will examine whether you have the option to withdraw your consent. However, it costs a hundred. And you need to be able to pay off the loan all at once. And sometimes you don’t get the full insurance premium back.
You can repay installment loans at any time, for example if a cheap loan is offered to you by another bank. You then have the exclusive right to terminate the residual debt insurance and recover at least part of the insurance premium. It is possible that the insurance takes some deductions because you allegedly received insurance coverage. It will always be worth it. You can quickly save a four-figure amount on insurance and interest. it’s very easy.
Perhaps the current restructuring of German financial regulator Baffin will help in the end. She has been aware of the misuse of this insurance product over the years and has informed the public about it on several occasions. However, that did not prevent this misuse until the law was passed last week.
So there is much more than that. The Baffin Insurance Advisory Board will hold its annual meeting next week. count on me.
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