Progress is sometimes a helix. The Bundestag decided last week that clients in the future will have to pay a significantly lower commission when obtaining insurance for the remaining debts. Sometimes this starts when clients are unable to pay the loan installment. In fact, this insurance is mostly illogical and should not be sold at all. MPs could have achieved this with smart rules. Now, as a consumer, you have to help yourself.
Remaining debt insurance – sold with an installment loan for a kitchen or car – has been a nuisance to many consumers for two decades. Because this insurance often doubles the cost of an installment loan. The bulk of these costs go to commissions for insurance brokerage. That’s up to 70 percent, like the FCA Baffin I identified a few years ago Cap.
How ridiculous this act is for consumers can easily be illustrated with one case. A Bavarian tax officer was sold in financial stress to insure residual debt from the auto dealer when he bought his car – to protect against unemployment (for a civil servant!). The Incremental Cost of the Poor Man: 1,817 euros.
The comparison of interest rates and insurance premiums for a € 10,000 installment loan is also impressive. The insurance is usually more expensive than the benefit.
How rarely insurance is actually enforced, was just confirmed by the opposition FDP faction in a small investigation by the federal government: Only 0.2 percent of all insurance contracts were ever paid. How high this is is unknown.
Consumer Advice Centers, which have assembled into an “Alliance Against Usury,” regularly report extremely horrific cases in which a large installment loan is combined with high costs to secure unnecessary residual debt. Ruined consumers.
Tightening the law earlier was of little benefit: Since February 2018, the bank has had to instruct consumers one week after obtaining insurance that they can also cancel insurance for the remaining debt if they do not want to. This didn’t help much. Bafin was only able to slightly increase the draw rate Notice in the following year.
The new law
The Grand Consortium has now decided, as of July 2022, that commissions for banks brokering the remaining debt will be capped at 2.5 percent of the loan amount. This means: Residual Debt Insurance, which protects a € 10,000 loan, may cost clients no more than an additional € 250 in agency fees. So far, the usual amount is € 500, including € 1,000 commission Happened sometimes. The new regulation aims to prevent the sale of insurance on residual debt from banks and auto dealers – as before – primarily in order to collect fat commissions.
The result isn’t really new, but it’s at least official now. The problem of insuring the remaining debt is already known For more than a dozen years.
Some banks have been staying away from the product for a long time. ING stopped selling years ago. With reasonable credit calculators Banks that offer such insurance in advance will be written off as part of the loan package.
The new law should at least make this futile work more difficult. Unfortunately, it was not until the summer of 2022. It would have been much easier to go around with higher-cap commissions for the British alternative to dry regulation:
In Great Britain, the Financial Conduct Authority decreed not to sell insurance on the remaining debt until at least one week after the loan agreement was signed – so that the customer would not get the impression that the loan would not exist without insurance. If the seller gives the impression that such insurance will make the loan cheaper, then the contract is immediately void.
In addition, contracts are prohibited in the UK where the customer cannot obtain the relevant insurance coverage. Selling these contracts to students or retirees is an abuse. Certainly, selling residual unemployment insurance to a government employee was not allowed there.
The British authorities have not banned such violations. It also ordered the cancellation of these illegal contracts. UK consumers have paid more than £ 38 billion in payment protection payments from their banks and insurers over the past decade. Get a response. Recently, about 90 percent of related customer complaints have been accepted. Billions are more in repayment than the major UK banks over the past decade Make a profit.
What can you do on your own
After reading this, you will usually not get new residual debt insurance when purchasing your next used car or when financing a kitchen. But what about your potential old decades?
There is also a remedy:
If you have just taken out insurance for the remaining debts, for example when purchasing a new electric vehicle, you can usually revoke it for a period of 30 days. The cancellation period does not begin until you are instructed in writing about your right to cancel and receive a product information sheet with all the details related to the insurance. Electronic form for cancellation You will find it here.
Sometimes you can get rid of the contract with the loan. The withdrawal period also applies to these loans. The rule here also applies that the bank must have properly informed you of the product and the cancellation options. Often, banks have not. The Consumer Center in Hamburg will check if you have the opportunity to withdraw your consent. However, that costs a hundred. And you need to be able to pay off the loan in one fell swoop. And sometimes you get it Failure to fully return the insurance premium.
You can recover your installment loans at any time, for example if you are offered a cheaper loan from another bank. Then you have a special right to terminate the remaining debt insurance and recover at least part of the premium. It is possible that the insurance will deduct something because you claim you enjoyed the insurance coverage. It’s still worth it. You can quickly save a four-digit amount for both insurance and interest. This is how easy it is.
Perhaps the current reorganization of Germany’s financial regulator will help Baffin in the end. I have known about the misuse of this insurance product for years and have reported it to the public many times. However, it did not stop the violation until the law was passed last week.
So there’s more. Next week, the Baffin Insurance Advisory Board will hold its annual meeting. Calculate it to me.