This article describes two abusive banking practices with regards to the life insursances mis-sold by banks and linked to mortgages which the banks later on do not paid the corresponding compensations or do not claim themselves as beneficiaries of the life insurance policies thus making profit of both the insurances premiums and the mortgage repayments.
The President of The Spanish Supreme Court Civil Section has been concerned recently about life insurance relating to mortgages and the court has recently published its' opinion on the matter. Everybody who takes out a loan which is secured on a property (a mortgage) must be made aware that the banks usually require an insurance policy on the life, or posible incapacity, of the borrower(s).
This is not a bad thing at all. According to the regulations in force at the time, it was compulsory for the banks to offer some products, or services to guarantee against an eventual loan default (subject to the borrowers' consent). This ensured that in the event of death, or incapacity of the borrower(s), the mortgage could be paid off. However, often the beneficiaries of these insurance policies were the bank lenders.
You can read here the full article in Spanish.
Usually the insurance sold was from a company related to the bank. In other words the bank sold a product from which it benefitted twice. It benefitted from the cover it provided in the event of death or incapacity, which is legitimate, and it benefitted from the sale of the product. This gave the Banks a strong incentive to sell its' own products rather than products which best met the needs of the individual – more commonly referred to as misselling. The new regulations in progress speciffically to forbid this misselling of products by the same group of companies.
The concerns of the Spanish Supreme Court relate to the following banking and insurance practices:
Firstly, if a borrower passed away the insurer did not allow the beneficiaries to claim the policy as the first beneficiary. Instead the bank was the first beneficiary. However, often the bank would not claim the insurance as they could make more profit from both from the insurance premiums and from the mortgage loan. If payments were not received, and at a time of the bank’s choosing, they could respossess the property, thereby making even more profit. This practice has recently been amended by the Supreme Court, in a ruling which declares that any policy beneficiary is entitled to claim the insurance policy, if the bank do not wish to do so.
The other practice is even more cruel. The bank just do not pay out on the insurance and start the repossession procedure if there is a loan default. Of course, this can end up in the loss of the property, which could be a family home. Consequently, The Spanish Supreme Court is asking for new financial regulations, from the appropriate legislative bodies to end such abuses. These financial issues are not matters that the Spanish Supreme Court can rule directly on.
My conclusión is that unfortunately, in Spain, consumers have a long way to go to have their rights respected. The good news is that there will always be brave cnsumers who will fight until the end. And the end is justice.
If you have any queries on these issues, or you think you are affected by them, please do not hesitate to contact us here.
Thank you for your time and attention and I hope this information is of use. You are very welcome to share if you liked it. Please, note that this is general information on legal subject and cannot be used as specific advice on legal situations. It is always recommended to seek legal advice for any specific situation you might be involved.
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