FSCA wants more credit life fairness
There is more scope for the banking industry to reduce or eradicate unfair practices linked to the way premiums are calculated for credit life insurance, says the Financial Sector Conduct Authority (FSCA).
There is more scope for the banking industry to reduce or eradicate unfair practices linked to the way premiums are calculated for credit life insurance, says the Financial Sector Conduct Authority (FSCA).
Selling insurance to borrowers to settle outstanding debt in the event that a client dies has been a lucrative business pegged to many forms of lending, and is often sold by the bank providing the credit. But the FSCA has taken issue with the way in which premiums are calculated over the life of a contract, according to new standards for treating customers fairly that have come into effect.
“We found that banks would charge the same premium regardless of the outstanding balance [of the loan]. But since we have effected the conduct standards, some of the providers have begun to adopt a reduction of premium in line with the declining outstanding balances,” the watchdog’s divisional executive for supervision of the conduct of business, Kedibone Dikokwe, said.
The FSCA said that under the standards, premiums should decline as loans are paid off in much the same way they do to accommodate depreciation in the case of motor vehicle insurance. It also said “some banks” are now beginning to do this, implying that others have not yet opted to implement the change.
As well as the issue of credit life insurance, the FSCA identified two isolated instances in which it found advertising to have been misleading during the marketing of products.
In one, the FSCA found that an interest rate on a credit card was conditional on certain criteria being met. A second referred to an incorrect description of the fees on a bank account.
After engagement with both service providers, the adverts were withdrawn.
The termination of customer accounts and an increase in fraudulent payment transactions are also causes for concern for the FSCA.
The findings, part of various others that were predominantly positive, were provided at an update hosted by the regulator on Tuesday to report on progress with the adoption of market conduct standards by
banks and payment providers.
Overall, 89% of banks have succeeded in inculcating market conduct culture and processes within their organisations.
“The attitude from the banks has been very positive,” Dikokwe said, adding that banks are co-operating as an exercise inf business imperatives rather than a mere “tick box” compliance effort. Market conduct governance structures have been created and incorporated into operating models.
THE ATTITUDE FROM THE BANKS HAS BEEN VERY POSITIVE. MARKET CONDUCT GOVERNANCE STRUCTURES HAVE BEEN CREATED
Banks were complimented for the way in which fees have been reduced or have remained unchanged throughout the shutdowns associated with the fight against the Covid-19 pandemic.
As part of the oversight responsibilities extended to it under the Financial Sector Regulation Act, the FSCA’s division for conduct of business supervision is empowered to engage with banks directly, and by other means, such as undertaking undercover shopping exercises to establish what is happening on the ground.
The standards are designed to ensure customers’ voices are represented at institutions and aim to institutionalise the concept of treating customers fairly. Six out of 10 standards have already come into effect, with the remaining four set to be implemented from July.