CR227 Loans – Loan on security of policy – complainant alleges interest rate not disclosed
Loans – Loan on security of policy – complainant alleges interest rate not disclosed
1. On 6 April 2001 the complainant made an off-shore investment in a policy in the amount of R400 000. The sale was done through a broker.
2. In the policy it is stated that interest bearing loans were available, not from the insurer but from an associated company of the insurer, against cession of the policy. The policy also further on stated that no nil interest bearing loans were allowed during the term of the policy.
3. R160 000 was advanced by the insurer to the policyholder and the policy was ceded to the company making the loan. On maturity the loan amount, which at that stage had reached R291 562,20, was paid to the lender and the balance was paid to the complainant.
4. The complainant was most unhappy about the reduced amount that he received. He claimed that he had never been told that interest was payable on the loan and he was unhappy because he received only R108 743 on maturity.
5. At first the insurer raised the fact that the issue of the loan should be taken up with the lender, not with them, but they then went on to actually deal with the complaint.
6. The insurer could, unfortunately, not locate a copy of a signed loan agreement but the loan application was found and that stated that the borrower agreed to be bound by the terms and conditions of the loan agreement, that the loan application has accepted, which it was in the circumstances.
7. The complainant made the further point that he had never been advised of the interest rate which applied during the term of the loan. In his view he was taking an advance on his own money. He alleged that had he known about the interest rate he would have obtained money from other sources.
8. We believed the complainant when he said that he did not think that the agreement in respect of the withdrawal of the R160 000 was subject to the payment of the interest.
9. He saw it, rightly or wrongly, as it was put in the summary statement of the policy, that he had elected to make a 100% penalty free withdrawal from the fund. That was the reason why in correspondence he kept harking back to the point that he was simply withdrawing part of his own funds.
10. His view was fortified by the fact that there was no document in the file signed by him in which the rate of interest was disclosed. In fact, the interest rate was prime plus 1,5 or 2% and that rate would endure for the whole of the loan.
11. Although we realised that the insurer was a separate entity from the lender it was also significant that the lender was a wholly owned subsidiary of the insurer. By interposing this separate entity as the lender, the lender did not have to comply with the Policyholder Protection Rules (PPR) which requires disclosure of the interest rate and the amount of the loan on an annual basis to the policyholder borrowing against his own policy.
12. We wrote to the insurer advancing these reasons as well as our unease about the fact that none of the documentation was on file and suggested that it would be an appropriate case to explore the possibility of a settlement that would be fair to both sides. It had become clear during the complaint that the adviser had not advised the complainant about the implications of the loan.
13. The insurer very graciously, albeit after some argument, agreed to not charge interest on the loan for the duration of the loan and offered to pay the complainant a further R131 258,20, which the complainant accepted and the matter was then regarded as resolved.