Bank of Russia proposes to apply ‘cooling off period’ to group insurance contracts

A meeting of the Experts Board for Financial Consumer Protection, held on 26 October 2017 at the Bank of Russia, discussed the borrowers’ option to refuse a group insurance service after signing a consumer lending agreement.

In the current situation, individuals wishing to take up a consumer loan are frequently encouraged to sign other agreements for additional services, accompanied by additional fees, e.g. a life insurance contract in favour of the creditor.

This may involve the borrower and the insurance company signing a separate insurance contract. However, another model has become widespread. In this model the borrower is included in the list of insured individuals under an insurance contract concluded between a bank and an insurance company. In this case, the borrower is unable to employ the ‘cooling off period’ and exit from the insurance contract after signing. To address this issue, the Bank of Russia proposes amendments to the Federal Law ‘On Consumer Loans’, according to which borrowers will have the option to pull out of an insurance contract within 14 calendar days of having applied for a loan. The borrower should be informed that the loan interest rate may be tied to the existence of an insurance contract under the terms of the loan agreement.  If the individual chooses to abandon the insurance contract during the cooling off period, the creditor and the insurer will be required to repay the fee for inclusion in the group insurance programme to the individual in full.

The Bank of Russia believes that this will help to resolve the problem of masked payments, which are not included as part of the total cost of the loan, becoming an additional burden for borrowers.