Archived—Project Summaries 2007-2008 - Centre d’intervention budgétaire et sociale de la Mauricie (ACEF)

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274 Bureau Street
Trois Rivières, Quebec
G9A 2M7
Tel: 819-378-7888
Fax: 819-376-6351

1. Personal Loan Agreements and Insurance


The Mauricie ACEF learned about the exorbitant fees charged by finance companies for life and disability insurance on loans. For example, under an HSBC Financial agreement, $9,282 in fees was charged on a $5,300 loan; $5,183 of the amount was for interest and $4,099 for insurance ($2,072 in premiums and $2,027 in interest on the insurance). The amount to be reimbursed totalled $14,582. According to the AECF, although consumers have the right to refuse to purchase the insurance offered by the loan company (they are free to go elsewhere for better insurance rates), it appears that this right is unknown or not acknowledged at the time of the transaction.

The AECF will be conducting a study to answer the following questions:

  • Do agreements comply with legislation?
  • How is the insurance option presented to consumers?
  • What kind of pressure, if any, is put on consumers?
  • Are consumers provided with all of the relevant information?
  • Are consumers aware of all their rights?
  • What happens to insurance agreements in the event of transformation or repayment of the loan before term (e.g., repayment of unearned premiums)?
  • Is it easy for consumers to obtain the information as required by law (e.g., disclosure of the cost of borrowing)?
  • Does the cost of insurance that is subject to a loan agreement correspond to a non-binding agreement?
  • Does financing for loan agreement insurance premiums correspond to a final prohibitive cost?
  • Insurance premiums financed as such become single premiums (three to five years in advance) and are capitalized, which should normally reduce costs. Are these savings passed on to consumers?

The AECF takes on an average of 225 budget consultation cases every year, whereby it has access to 90 finance company agreements (e.g., Trans Canada, CitiFinancial, Household Finance, Wells Fargo and HSBC); 165 bank agreements (e.g., CIBC, Laurentian Bank, BMO, National Bank, Royal Bank, Scotia Bank, Hong Kong Bank); and 255 credit union agreements that could be used for the purposes of the study.

The method used by the AECF will not only serve to thoroughly review agreements used by the industry, but also to clarify and explain in lay terms what is currently impossible for consumers to understand and compare.

The AECF will conduct more in-depth research by interviewing agreement holders among its regular clientele or by looking for similar cases in its area, either through a public announcement or through referrals from other regional groups or organizations, in order to determine the level of knowledge and the experience of the average consumer with respect to this type of agreement and related practices.

The AECF will look at two insurance policy classes related to personal loan agreements, namely life insurance and disability insurance. The main research question concerns calculation modes and a comparison with pure insurance contracts. Marketing strategies adopted by the various institutions will have to be defined, as they differ in details, which forces the AECF to create its own categories for comparison.

Practices' compliance with existing Quebec legislation, namely the Act Respecting the Distribution of Financial Products and Services, the Consumer Protection Act and the Act Respecting Insurance, will also need to be verified. The AECF will be contacting various associations in other provinces to obtain an overview of personal loan agreements elsewhere in Canada.

The AECF will be asking the Accounting Department at the University of Quebec at Trois-Rivières for assistance. The AECF has already been referred to a professor who holds a PhD and who has agreed to supervise the project. The AECF will ensure that it enlists the co-operation of industry representatives and that the representatives provide ongoing feedback so as to obtain their explanations, arguments and feelings regarding AECF analyses. If necessary, the AECF will consult an actuary at Laval University's School of Actuarial Science.