Credit insurance may be rejected with premium refund
The Federation Council has approved a law drafted together with the Bank of Russia that implies that a borrower will be entitled to receive a refund for the premium paid to the creditor for joining a group insurance programme. This insurance scheme will provide for a cooling-off period similarly to individual insurance contracts: a borrower will have the right to cancel the contract within fourteen calendar days, by writing an application for being excluded from those insured. The creditor will be obliged to refund all money paid by the borrower for joining the programme within seven business days, provided there is no insured event.
The law also reflects the Bank of Russia’s suggestions on a partial refund of the insurance cost paid by the borrower in case of early loan repayment and non-insurance. The law implies that in such a case, the insurance premium paid shall be refunded to the borrower, less the part thereof proportionate to the expired insurance period, provided there was no insured event.
In addition, a creditor will be obliged to inform the borrower about the specifics of joining a group insurance contract, possibilities of abandoning such a contract and amounts of the insurance premium and other payments (e.g., fees) making up the cost of this service, or about the maximum possible payment comprising the insurance premium and other payments. The law also takes into account credit institutions’ suggestions to specify if a consumer loan contract and an insurance contract are interrelated.
The law stipulates that the above approaches are also applicable to mortgage contracts.
That said, the approved amendments preserve the approach pursuant to which a creditor is entitled to raise a loan interest rate in case a borrower withdraws from the insurance contract.
The law will become effective on 1 September 2020 and will cover legal relations arising under insurance contracts signed after the said date.