Lenders banned from making life insurance purchase mandatory for loans
Under a new regulation, Commercial banks are prohibited from forcing loan clients to buy life insurance through bancassurance channels.
During a recent meeting, Minister of Finance Hồ Đức Phớc said lenders are banned from selling life insurance to loan clients 60 days before and after the loan disbursement.
The decision was made in response to rising concerns about misconduct in the life insurance industry as loan customers have been reporting that they are under pressure by bank staff to purchase life insurance so as to have their loans disbursed.
An employee of state-owned bank Bank for Investment and Development (BIDV) in HCM City, who declined to be named, told Việt Nam News: “It is an unwritten rule that customers must buy insurance to secure their loans.”
An employee at a private lender in the country’s largest city also told Việt Nam News that loan clients could face higher interest rates if they refuse to purchase the insurance.
Under the ministry’s new regulations, insurance agents must document the advisory process for investment-linked insurance products, such as life insurance, to confirm the customer’s voluntary participation.
In addition, life insurance companies could face fines of up to VNĐ100 million for intentionally providing incorrect advice.
The regulations also include penalties for unclear and inaccurate product information, promising illegal benefits, advising clients to purchase insurance with unfavourable terms, and using unqualified brokers.
Any reports of mandatory insurance purchases during loan disbursement will be reported to the State Bank’s inspection and supervision agency for appropriate action.
SCB scandal
Last year, a number of clients approached Manulife, a major life insurance company in Việt Nam, seeking justice after falling victim to fraudulent activities carried out by employees at Saigon Commercial Joint Bank (SCB).
The customers, many of whom were elderly or involved in housework, said they had been deceived by SCB staff who led them to believe they were making deposits in the bank when in fact they were purchasing a life insurance product.
Upon attempting to withdraw their supposed deposits, customers were persuaded by SCB employees to invest their money in a sixyear “savings-investment” scheme promising higher interest rates and early withdrawal options.
It was only later, upon being contacted by Manulife and charged insurance fees, that these individuals realised they had unintentionally acquired insurance contracts.
La Thị Hồng, a lawyer based in HCM City, told Việt Nam News that her client was able to reclaim VNĐ200 million (US$8,000) from the life insurance company after being cheated into buying life insurance by SCB staff.
In recent years, bancassurance has generated substantial income through fees and commissions for many banks.
However, concerns have been raised about the quality of advisory services, customer care, and claims settlement in the expanding life insurance sector.
The ministry has recently conducted investigations on a number of life insurance companies and has fined two firms for violations in the sales of life insurance through credit institutions.
Prime Minister Phạm Minh Chính has blamed the Ministry of Finance and the central bank for their weak management that caused the ongoing issues.