Why Fining Banks for Forcing Insurance on Borrowers Matters?

The State Bank is seeking feedback on a draft decree to replace Decree 88/2019/ND-CP, which stipulates administrative sanctions in the field of currency and banking (as amended and supplemented).

The decree has been reviewed and amended to align with current regulations, including the Law on Credit Institutions (amended), which will take effect from July 1, 2024.

Among the changes, the decree proposes a fine of VND 400-500 million for banks that violate regulations by linking the sale of non-mandatory insurance products with the provision of banking products and services in any form, as per the Law on Credit Institutions.

According to the State Bank, this new provision aims to impose penalties for violations in line with the 2024 Law on Credit Institutions. The new sanctions come after numerous borrowers reported being forced to purchase “bundled” insurance, increasing their borrowing costs.

Most recently, voters in Khanh Hoa province brought to the attention of the State Bank that when people apply for loans at banks, especially commercial banks, they are still forced to purchase various types of insurance, such as life insurance, health insurance, and fire insurance, before their loan applications are approved.

According to Nguoi Lao Dong reporters, some customers have shared that when taking out a bank loan, “you have to buy insurance, or you won’t get the loan.” On the sidelines of a recent conference on bank-business dialogue in Ho Chi Minh City, a representative of a local industry association recounted that some member enterprises within the association had been invited to purchase life insurance for their loans.

“If they refuse, their loan applications are often made difficult or delayed. So, if a business wants quick disbursement of funds, they have to agree to buy the insurance. So, is it coercion or not? It’s hard to say,” the representative wondered.

The State Bank has repeatedly affirmed that current laws prohibit coercing customers into buying or entering into insurance contracts. Specifically, Article 9, Clause 5 of the 2022 Law on Insurance Business prohibits “threatening or coercing the conclusion of an insurance contract”; and Article 15, Clause 5 of the 2024 Law on Credit Institutions prohibits “credit institutions, foreign bank branches, managers, executives, and employees of credit institutions and foreign bank branches from linking the sale of non-mandatory insurance products with the provision of banking products and services in any form.”