When the mortgage links to insurance: the single financed premium

José Pablo Sancha, 50, is ironic when talking about his mortgage: “It’s very complete,” says the owner, along with his wife, of the single-family home where they live with their two children in a town near Seville. In 2006 they signed a loan of 180,000 euros that they consider “the paradigm of everything that should not be done” due to the number of abusive clauses it contained. The public employee explains that they realized it soon, after three years, when they saw that the quotas of others went down and theirs did not. In 2014 they sued for the first time and since then, at the mercy of Spanish and European rulings, they have been seeing what they could claim and what they could not. His next battle is life insurance that he paid for and knows nothing about. “I was included as an expense in the operation as a whole,” Sancha complains, “but when I asked for a copy they told me that they would not give it to me because I am not the beneficiary.”

What Sancha and his wife signed is what is known as insurance with a single financed premium. It is paid once for the entire duration of the policy (instead of renewing it in annual installments) and according to lawyer Pablo Franquet it constitutes “a system to maximize the income of entities in mortgage operations.” Sometimes the beneficiary is not the one who pays it, but the entity, which thus guarantees the collection of the outstanding capital if something happens to the borrower. “The operation is round for the bank because it gives more loans, it obtains more interest [el importe se suma al principal de la hipoteca] and feeds the business of an insurance subsidiary”, explains the lawyer, who is a partner in the Fieldfisher litigation area and collaborates with Asufin (Association of Financial Users). On the contrary, for the client it has few advantages: it is “an unnecessary over-guarantee”, says Franquet, because a mortgage already has the property itself as a guarantee, and the insured cannot cancel or change it if they offer another cheaper product because they already have it. has paid.

In Spain there are no statistics on how many borrowers have been involved in situations of this type, but Franquet maintains that it is “a bad banking practice that has been done for many years.” The General Directorate of Insurance and Pension Funds, dependent on the Ministry of Economic Affairs, has described the single financed premium as an “action contrary to good practice” in all its claims reports since 2018, which means that the matter has been repeated reason for protests by consumers. The lawyer adds that “there is jurisprudence and overwhelmingly the consumer has been right.”

Asufin has compiled twenty sentences on the matter in which the client has won the lawsuit (in one of them, by partial estimation). The amounts claimed range from a few thousand euros (Sancha, for example, believes that she paid 2,204 euros for what she put in her mortgage, but has not seen the policy) to almost 41,000 euros. In most cases, the courts order to return the part of the insurance that has not been enjoyed and more than half of the rulings are dated from 2019 onwards: “Little by little it is making its way in the jurisprudence,” they say in Asufin .

Out-of-court settlements

In part, this increase in litigation is due to the Navarran firm Godaracena Abogados. Its director, Javier Goldaracena, remembers two cases of single financed premium that won in 2019 and raised some expectations. In fact, his experience is collected in the book Abusive banking practices: how do I defend myself?, which they published a year ago. “It’s a pretty nice topic,” says the expert, “it has managed to recover significant amounts, up to 20,000 euros, for customers.” Goldaracena believes that “unlike other more hackneyed issues that have reached the Supreme Court”, such as floor clauses or multi-currency mortgages, the banks have kept a more discreet profile in this in court so as not to cause a stir. As an example, he lists more than 20 “out-of-court” cases that his office has handled in recent years. That is to say, that the entities have accepted economic agreements not to go to trial.

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Those who, on the other hand, are very interested in promoting awareness of this practice are the independent insurance brokers. The employer of these professionals, Adecose, published a report last February where it analyzes the way in which banks sell insurance, something they believe harms them. Borja López-Chicheri, manager of that organization, explains that the report has been “sent to the political parties” and they hope to achieve a legislative change when there is an opportunity. “Banks use their strength to invite you to buy insurance with them,” says López-Chicheri, “and one of the classics is life insurance with a single premium.” The bank employers have declined to comment.

Since the Law regulating real estate credit contracts came into force in June 2019, in Spain it is prohibited to link insurance to mortgages, beyond basic damage insurance (for example, in case of fire) which is mandatory. . They can be offered, however, as a complementary product and discount the price of the loan in exchange. Sometimes they are still offered at a single premium, if not for the entire duration of the loan, then for several years. But the client must always be able to reject it and contract, if they wish, the product with a third party. That makes, explains Goldaracena, that for mortgages signed since 2019 it will be more difficult to claim. Because the basis of the judicial mess, all those consulted agree, is the way in which these insurances were marketed and the lack of transparency in the negotiation. This is a requirement that European consumer protection legislation enshrines and that has been the Achilles’ heel of all the clauses that have ended up being declared abusive.

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