NCR Raises Red Flag Over Finbond Mutual Bank Credit Life Premiums

The National Credit Regulator (NCR) has completed an investigation into Finbond Mutual Bank. Importantly the investigation followed accusations of charging its clients “unreasonable” amounts for its credit life insurance product. Lesiba Mashapa, company secretary at the NCR  disclosed the results of the investigation.

Subsequently Mashapa, representing the NCR, called on the National Consumer Tribunal to take stern action against the bank. And he requested the tribunal to order Finbond to reimburse its debtors the portion of their premiums. Mashapa said the investigation showed that Finbond charges R128 insurance premiums for a R700 loan for repayment over three months. And this is in stark contrast to the R10 industry average for loans ranging up to R1,000.

Finbond Average

Mashapa noted that while Finbond levies Finbond Mutual Bankthe accepted average, dating back to when they began issuing loans. In addition the NCR noted that the high premiums do not reflect in the amount Finbond paid in claims over the past year.

So there is a huge disparity between the R56.3 million the bank collected from customers in premiums and the R1.7 million it used to service claims, as their 2014 financial report indicates. And this has resulted in a loss ratio way below the 20% industry average for credit life insurance. This percentage is 40% below the average for other insurance products.

Changes as Results of Finbond Mutual Bank Issue

For the above reasons, and to safeguard the rights of borrowers, NCR is contemplating fixing a premium limit for credit life insurance. The body has gone beyond thinking about the restriction; this February, NCR and the Financial Services Board sat down to draft credit life insurance guidelines. Among the measures included in the discussed regulations is putting a ceiling on premiums for this kind of insurance. Other proposed measures are the clear definition of benefits and exclusions to customers so as to seal all loopholes for exploitation.

Previously, NCR has proposed a maximum premium of R4 for a loan of up to R1,000. But this, along with other stipulations in the 2013 draft code of conduct, were shelved when work began on the draft regulations, currently being reviewed by the Department of Trade and Industry.


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All info was correct at time of publishing