In its April 23 2015 judgment the European Court of Justice clarified that Article 4(2) of the EU Unfair Consumer Contract Terms Directive (93/13/EEC) must be interpreted to determine whether the clauses that predict the limits and/or cases of exclusion regarding the effectiveness of an insurance agreement covering payment obligations of mortgage loan instalments in the event of a borrower's total incapacity for work fall within the concept of unfair terms.(1) National judges must assess whether:
"first, that, having regard to the nature, general scheme and stipulations of the contractual framework of which it forms part, and to its legal and factual context, that term lays down an essential component of that contractual framework, and, as such, characterises it, and,secondly, that that term is drafted in plain, intelligible language, that is to say that it is not only grammatically intelligible to the consumer, but also that the contract sets out transparently the specific functioning of the arrangements to which the relevant term refers and the relationship between those arrangements and the arrangements laid down in respect of other contractual terms, so that that consumer is in a position to evaluate, on the basis of precise, intelligible criteria, the economic consequences for him which derive from it."
An official statement dated June 5 2015 disclosed that IVASS – the Italian insurance regulator – and the Bank of Italy have met consumers, insurance companies, intermediaries, banks and financial company representatives to discuss the issue.(2)
As noted in the official statement, numerous criticisms regarding the production and distribution of insurance policies linked to loans have been raised, including the following:
- Regarding production, policies have been excessively standardised and many exclusions and limitations are foreseen, as well as a lack of coverage periods and/or deductibles, which are excessively wide and often accumulated. There is also no provision for a lack or belated repayment of the portion of the premium not enjoyed in the event of early redemption of the loan.
- As regards distribution, cases of forced sales have been identified (the policy, albeit optional, is imposed by the bank or finance company as a condition for taking out the loan), as well as a lack of any checks regarding whether the policy meets the customer's effective needs. Further, the provision of information to customers regarding the features, limits and cost of insurance coverage is poor.
IVASS and the Bank of Italy will give specific instructions to the market, requesting that products and sales practices be realigned to meet the guidelines provided.
For further information on this topic please contact David Maria Marino at DLA Piper Italy by telephone (+39 02 80 61 81) or email (firstname.lastname@example.org). The DLA Piper website can be accessed at www.dlapiper.com.
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