The Central Bank of Nigeria has warned the banks from compelling borrowers to patronise specific underwriting companies to buy insurance covers that are mandatory to access some loans.
The apex bank gave this order in its consumer protection guidelines on ‘Responsible business conduct.’
Part of the guidelines read, “Financial institutions shall not compel a consumer to buy a product or service, such as insurance or valuation service from a particular provider as a pre-condition for the grant of a credit facility.”
Banks usually ask borrowers to take insurance covers to protect the loans they planned to obtain, against unforeseen circumstances that may hinder their ability to repay the loans.
Such circumstance could be permanent disability, death or other forms of losses.
Some banks operating in the country presently have insurance subsidiaries or close relationship with some of the firms.
To ensure that consumers’ capability to repay credits were efficiently assessed, the CBN stated that financial institutions must comply with its specific requirements.
It stated that the requirements were described in credit risk assessment procedures, the type and circumstances for which a credit would be suitable, as well as clear lines of authority for approving the product.
The requirements also assessed the capability of customers to repay a credit in a sustainable manner, taking into consideration the customers’ financial circumstances.
It also set clear policies and procedures on consumer loans to ensure that customers who were unable to meet their repayment obligations due to ill health, unemployment or other disabilities were treated fairly and with due consideration.
As part of the banks’ regular monitoring of loan performance and upon early detection of signs of repayment difficulties, the CBN said they must inform consumers of the importance of timely engagement with the financial institutions to discuss alternative repayment measures.
It said they should make reasonable efforts to offer an alternative repayment plan that was appropriate to the customer’s changed circumstances and financial situation.