The new regulation applies generally to loan and leasing contracts, and real estate loans are also included. The cabinet could already pass a corresponding draft from the Federal Ministry of Finance this Wednesday. Originally, the cover should also apply to life insurance. But the SPD was unable to assert itself against the Union here.
“It is good that we in the coalition have agreed on an effective cap on the purchase commission for residual debt insurance,” said the financial policy spokesman for the SPD, Lothar Binding, the Handelsblatt. “In this way we protect consumers from excessive costs, secure the income of the fair brokers, and the wolves in sheep’s clothing are chased away,” said Binding. Usury commissions were not infrequently demanded in the past.
The industry is raising heavy artillery against the government’s plan. The draft law is “tantamount to a sales ban and threatens to destroy the market for residual debt insurance in Germany,” says industry representatives who do not want to be named. With a fixed cap of 2.5 percent and a simultaneous restriction to a pure closing commission, the industry cannot cover costs. What is needed is a “risk-dependent, breathing commission cap of five percent”.
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Industry representatives do not want to stop at mere criticism. The constitutional conformity of the law is to be checked. It is doubtful “whether such a massive intervention in this product is constitutionally permissible without an established market failure,” it says.
Insurance is taken out for 30 percent of the loan agreements
Many consumers are likely to have come into contact with payment protection insurance by the time they have taken out a loan. According to investigations by the financial supervisory authority Bafin, the insurance companies have residual debt insurance contracts with 8.2 million insured persons. According to estimates, residual debt insurance is taken out for around 30 percent of the loan agreements.
The insurance protection came under criticism, in particular due to the commission practice. Investigations by the financial supervisory authority Bafin had shown that the credit institutions that issued the loans received exceptionally high commissions from the insurance companies for brokering residual debt insurance.
In the market research, twelve banks stated that they received 50 percent of the insurance premium, at seven institutions it was over 50 percent, in exceptional cases even more than 70 percent.
“In this way, the product of the residual debt insurance is enormously expensive without generating an adequate benefit for consumers in the form of improved insurance protection,” says the explanatory statement.
The product could even be counterproductive. Because the costs resulting from an expensive residual debt insurance could contribute to the over-indebtedness of the consumer. According to the Bafin investigation, consumers were billed for the premium, some of which amounted to more than ten percent of the loan amount. A further complicating factor is that high commissions are preprogrammed with false incentives in sales. Neutral advice that is oriented towards the interests of the customer becomes difficult.
Consumer advocates welcome the initiative
It is not without reason that the coalition is now basing its cap on the initial commission on the insured loan amount. This is to prevent circumvention of the cap. Ultimately, insurance companies could simply increase the premiums if the law was based on the premium.
Consumer advocates welcome the initiative. “It is good that the cap for commissions for residual debt insurance is now on its way,” says Dorothea Mohn, team leader for the financial market at the German Consumer Association. The massive excesses in distribution and sales, which they consider to be massive, can thus be mitigated. But the way in which residual debt insurance is not sold that is geared to customer needs remains a construction site.
Stiftung Warentest had tested the residual debt insurance months ago. After that, three quarters of banks did very well in terms of death protection. When it comes to insurance coverage in terms of incapacity for work, the benefits of 15 of the 25 banks examined were rated as poor. In contrast, the industry points to a high level of customer satisfaction.
More: More consumer complaints about banking and insurance