The Law in Spain Relating to Mortgages and Insurance Products

Life insurance and mortgage in Spain

 

This article describes two abusive banking practices with regards to the life insursances mis-sold by banks and linked to mortgages. The banks do not paid the insurance compensations. The banks do not claim either themselves as beneficiaries of those life insurance policies. This way the banks make profit both from insurances premiums and the mortgage repayments.

Mortgage related life insurance

The Spanish Supreme Court is concerned about life insurance relating to mortgages. You can read here the full article in Spanish. Everybody who takes out a loan secured by a property (a mortgage) should beware that the banks usually require an insurance policy on the life or incapacity of the borrower(s).

This is not a bad thing at all. According to the regulations in force the banks have to offer some products to guarantee 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 in the first place.

Misselling by Banks

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. The bank benefits from the cover it provided in the event of death or incapacity which is legitimate. And it also benefits from the sale of the product. So the Banks a strong incentive to sell its’ own products instead of the best for the clients’ interests. And this is commonly referred to as misselling. The new regulations in progress speciffically to forbid this misselling practices.

The concerns of the Spanish Supreme Court relate to the following banking and insurance practices:

  1. Firstly, if a borrower pass away the insurer do not allow the beneficiaries to claim the policy as the first ones. This is because the bank it is the first beneficiary itself. But it happens that often the bank will not claim the insurance compensation at all. And this is because the bank makes more profit charging the insurance premiums and the mortgage payments at the same time. If the mortgage payments are on default the bank can respossess the property, thereby making even more profit. The Spanish Supreme Court amended this practice ruling that any policy beneficiary is able to claim to the insurance company if the bank do not wish to do so.
  2. 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.

Protect Your Rights

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, you can always contact us here.

Thank you

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. You could also be interested in this post or this other one.

Warning

Please, note that this is general information on legal subject and should not be used as specific advice on legal situations. It is always recommended to seek legal advice for any specific situation you might be involved.