The Central Bank named financial products with low consumer value

The Bank of Russia has compiled a list of financial products with low, non-obvious or no customer value for customers, follows from the report of the regulator. The Central Bank believes that the content of such products “does not imply obvious value for the consumer, but is aimed at maximizing the income of a financial institution.”

The list includes four insurance instruments, two from banks and two from microfinance organizations, including life insurance, collective insurance, correction of credit history with loans, luggage loss insurance.

The Central Bank considers a large number of exclusions from insurance coverage, which significantly reduces its volume, to be the main disadvantages of credit life insurance for a borrower; one-time premium payment for the entire insurance period; inclusion in the contract of insurance risks that do not serve the purpose of securing the loan and do not affect the terms of the loan, as well as a complex procedure for obtaining insurance payments.

The cost of collective insurance contracts is many times greater than their client value, the Central Bank notes. In case of early repayment of the loan or in case of unilateral refusal of the client from the contract, the payment is not always returned, and sometimes it is not taken into account in the full cost of the product.

Luggage loss insurance is a low-risk type of insurance, the report says. Some boxed insurance products (policies with a certain set of the most common risks, fixed sums insured and premium) cover a small number of risks, and the insurer expects their activation to be low.

Correcting a credit history by issuing a credit card with a small limit has an unobvious consumer value: in this case, the client cannot dispose of credit funds, since they are fully or partially written off as a payment for issuing or annual card maintenance, the Central Bank draws attention. This financial product does not guarantee that the consumer’s credit rating will be upgraded and that he will receive a loan in the future, but it may adversely affect the credit history in case of delinquency on obligations. In addition to banks, such financial products are also offered by microfinance organizations (MFIs).

Reducing the interest rate for a fee, in turn, may be disadvantageous for the client, especially with a short loan term, since the refundable amount of interest payments does not exceed the payment for its provision. In addition, credit institutions do not inform about the conditions for early repayment or refusal, the document says.

MFIs also offer, for an additional fee, to send information about a consumer loan agreement to not one, but several credit reference bureaus in order to allegedly improve the assessment of the client’s solvency. In fact, for the consumer, this financial product does not affect anything, since the assessment of solvency depends solely on the payment discipline of the borrower.

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