Progress is sometimes snail. Last week the Bundestag decided that in the future customers would have to pay significantly lower commissions when taking out residual debt insurance. This sometimes happens when customers can no longer pay the loan installment. In fact, this insurance is mostly meaningless and should rarely be sold. MPs could have achieved this with clever rules. Now, as a consumer, you have to help yourself.
Residual loan insurance – sold with an installment loan for a kitchen or car – has been a nuisance for many consumers for over two decades. Because such insurance often doubles the cost of an installment loan. The bulk of these costs go towards commissions for insurance brokerage. This is up to 70 percent, as determined by the financial supervisory authority Baffin a few years ago.
How inane this business is to consumers is easily understood by one case. In a financial crisis a Bavarian tax officer was sold a residual debt insurance from a car dealer when he bought his car – to save him from unemployment (for a civil servant!). Unnecessary cost for the poor man: 1716 euros.
The comparison of interest rates and insurance premiums for an EUR 10,000 installment loan is also impressive. Insurance is usually more expensive than interest.
Insurance actually rarely comes into play by the FDP opposition faction in a small request from the federal government: only 0.2 percent of all insurance contracts were paid. How high it is is not known.
Consumer advice centers, which have come together in the “Coalition Against Usury”, regularly report very frightening cases in which a large installment loan, along with the high cost of unnecessary residual debt insurance, has ruined consumers. .
There was no use to toughen the law earlier: since February 2018, a week after the bank took out the insurance, consumers have been instructed that they can also cancel residual loan insurance if they do not want it. It did not help much. Baffin was only able to determine a slight increase in the withdrawal rate the following year.
The Grand Alliance has now decided that, from July 2022, the commission for broker residual loan insurance for banks will be capped at 2.5 percent of the loan amount. This means: A residual debt insurance, which protects a loan of 10,000 euros, may not cost customers 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 dealers from selling residual debt insurance – as before – primarily to collect fat commissions.
The discovery is not really new, but at least it is now a government official. The problem with residual debt insurance has actually been known for over a dozen years.
Some banks have been away from the product for a long time. ING stopped selling years ago. With prudent loan calculators, banks that offer such insurance in advance as part of a loan package are removed.
The new law should at least make this useless business more difficult. Unfortunately not until the summer of 2022. A bone-dry British version of regulation would have been much easier than circling through the capped commission:
In Great Britain, the Financial Conduct Authority has decided that residual debt insurance cannot be sold for at least one week after the loan agreement is signed – so that the customer does not have the impression that the loan 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 could not obtain the relevant insurance coverage. The sale of such contracts to students or retirees is considered misuse. The sale of a residual debt insurance against unemployment to a civil servant would certainly not have been permitted.
And it is not just the misconduct that the British authorities have banned. He also ordered the withdrawal of these illegal contracts. UK consumers have reimbursed over £ 38 billion in payment protection payments from their banks and insurance companies over the past decade. Recently, about 90 percent of the relevant customer complaints were approved. The UK’s major banks have reimbursed billions far more than the profits they have made in the past decade.
What can you do yourself
After reading this, you will usually not get new residual loan insurance when purchasing your next used car or financing the kitchen. But what about your potentially old contracts?
There is also a remedy:
If you have just taken residual loan insurance, for example when purchasing a new electric car, you can usually cancel it for 30 days. The withdrawal period does not begin until you have been instructed in writing about your right of withdrawal and have received a product information sheet with all the details about the insurance. A sample letter for repeal can be found here.
Sometimes you can get rid of a contract with a loan. Withdrawal period also applies to such loans. And here the rule also applies that the bank must have properly informed you about the product and the cancellation options. Often enough, banks have not done this. The Consumer Center in Hamburg will investigate whether you have a chance to withdraw your consent. However, it costs a hundred. And you need to be able to repay the loan in one swoop. And sometimes you do not get the full insurance premium back.
You can redeem installment loans at any time, for example if you are offered a cheap loan from another bank. You then have the exclusive right of termination for residual debt insurance and get back at least part of the insurance premium. It is possible that insurance will take some deductions because you allegedly enjoyed insurance coverage. It will still be worth it. You can quickly save a four-digit amount on insurance and interest. it is so easy.
Perhaps the current restructuring of German financial regulator Baffin will help in the end. She has known about the misuse of this insurance product over the years and has informed the public about it many times. However, this did not prevent this misuse until the law was passed last week.
So there is a lot more to it than this. The Baffin Insurance Advisory Board will hold its annual meeting next week. count me in.