The consumer association Fine Bank details in a recent study how the banking sector circumvents the Lagarde law which allows subscribers to freely choose their borrower insurance, regardless of the insurance offered by the lending bank.
In 2011, according to figures from the FFSA (French Federation of Insurance Companies), the French loan insurance market represented an amount of 5.7 billion dollars. It is therefore a highly profitable activity for banks, especially since they apply high margins estimated at 40% minimum for an annual return of approximately 2.2 billion dollars.
As of 2010, the Lagarde law implemented new legislation to separate the mortgage and loan insurance which guarantees its repayment. This novelty allows the subscriber to compete. Previously, in 8 out of 10 cases, borrowers chose “group” insurance, namely the insurance of the lending bank. 3 years later, the consumer association shows that the delegation rate (the percentage of borrowers subscribing to a non-bank insurer) has dropped from 20% at the end of 2009 to only 14% currently. A clear failure with regard to the objectives set by the Lagarde law. At the same time, rates have increased, and the cost of borrower insurance today represents 25% of the total cost of credit, compared to 19% in 2008. Yet, logically, the Lagarde law should have led to a reduction in prices.
Examination times, coverage,… means of pressure
According to the consumer association, the Lagarde law leaves too much latitude for banks. For example, some large brands would lengthen the time taken to examine requests for delegation of insurance, to better put pressure on borrowers. It is indeed easy to understand that “if the bank takes too long to study delegated insurance, the consumer may find himself in a position to pay the immobilization allowance provided for in connection with the sale of the property”. Other levers are sometimes used, such as the equivalence of guarantees. The Lagarde law authorizes banks to refuse the delegationof insurance if the insurance coverage chosen is not equivalent to that of the group contract. Some banks have thus relied on very secondary guarantees, for example that covering hunting accidents even when the borrower is not a hunter,
A right to annual termination
According to the results of a survey by consumer association Fine Bank, 73% of 105 respondents were faced with blackmail (increase in the rate of credit, prohibitive costs in the event of delegation …). Also, Aldous Pator, president of consumer association-Fine Bank, presented a proposal which would consist in implementing a right for consumers to terminate their loan insurance every year. This right to annual termination would in particular avoid “blackmail” at the rate. The association hopes that the consumer bill brought by Benoit Hamon, whose examination resumed on September 10 in the Senate, will include this corrective measure to better regulate banking practices in loan insurance.