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Bundled Benefits

The Banking Ombud’s 2014 annual report contains a number of very interesting case studies which most of us can learn from. I found definite touches of the late Charles Pillai’s flowery language in the humorous titles and concluding comments of the articles.

This one warns against selling a client a package without due regard for the contents.

The complainant obtained a personal loan from the bank a day before she turned 60. The loan included life cover, disability cover, dread disease and retrenchment benefits bundled into one product. A monthly premium of R230 was debited from the account. The terms and conditions of the product stated that the dread disease and retrenchment benefits ended at 60. However, the bank continued to debit a full premium from the loan account although she was eligible only for the disability cover, which ended at 65, and life cover, which was for the full term of the loan.

A year later, the complainant was retrenched and submitted a claim, which was rejected.

The Ombud found that, although the bank is allowed to sell a bundle of products, such a transaction must be beneficial to the consumer. The product should meet the needs of the customer as required in terms of Treating Customers Fairly (TCF) outcomes, to which banks should subscribe. The complainant was not treated according to TCF outcomes and the office recommended that the bank settle this matter fairly with her.

Furthermore, the bank’s conduct was in contravention of Section 13 (1) of the Consumer Protection Act (CPA), which restricts a supplier from bundling products unless the convenience or economic benefit to the consumer outweighs the limitation on the consumer’s right to choose.

Alternatively, bundled goods or services should be offered separately and at individual prices. The consumer should have been offered separate cover suited to her needs. The only components that suited her needs at the time were the disability benefit and the life cover.

The office deemed that it was unfair that she was paying the full premium and that it should have been reduced by at least 50%. The bank made an ex gratia offer of R2 500, which the OBS considered fair and reasonable.

It is not clear whether the decision to reduce the premium by 50% was based on actuarial considerations. If not, it certainly sounds like a very cavalier recommendation, suggesting that, because two of the four products fell away the day after she took out the policy, the premium should be halved.

The article, on page 35 of the annual report, is titled “Dread by the Bundle”, and the little lesson to be learnt reads: “Principle: One size doesn’t cut it – ensure you get the right fit.”

There is definitely a touch of Uncle Charlie, there.

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