These case studies have been modified so as not to identify any actual cases at FIDReC. They are provided for purposes of learning and are not necessarily indicative of outcomes at FIDReC.
67-year-old Mr Lee was a long-time XYZ Bank customer who spoke Mandarin. He often visited Relationship Manager Alan at his branch to place fixed deposits.
When Mr Lee wanted to renew some matured fixed deposits, Alan informed him that there were no promotional rates available. Alan suggested a single premium whole life insurance policy funded by a bank loan. He assured Mr Lee that the interest would be fixed for the first two years. After that the policy returns would cover the monthly interest payments. Mr Lee agreed.
A year later, Mr Lee’s monthly interest repayments increased sharply. Concerned, he contacted Alan, who reassured him that the interest would decrease over time.
Another year passed, and Mr Lee returned to ask Alan about fixed deposit promotions. Alan again recommended a similar single premium whole life insurance policy, which Mr Lee accepted.
Two years later, Mr Lee could not afford the rising monthly interest payments. Neither policy had generated the promised returns. Under financial pressure, he surrendered both policies at a loss. Mr Lee complained to XYZ Bank and later came to FIDReC, eventually proceeding to adjudication.
XYZ Bank argued that Mr Lee signed all documents, including a bilingual declaration. Alan explained the loan’s fixed and floating interest components, and Alan’s supervisor conducted a Mandarin validation in person with Mr Lee.
Mr Lee claimed that Alan misled him. He was not told his loan payments only covered interest, not the loan principal. He would not have agreed if he knew that the principal would remain outstanding until he surrendered the policies or passed away.
The Adjudicator considered the arguments and evidence presented. She found that Alan misled Mr Lee about the first policy’s loan interest, but not the second. This was because Mr Lee should have been aware of the risks and interest rate structure by then.
However, both policies were unsuitable for Mr Lee. Mr Lee was a vulnerable customer with limited financial literacy and a low risk profile. Alan failed to consider Mr Lee’s overall situation, especially when selling the second policy. Then, Mr Lee was already struggling with rising interest payments from the first policy.
The Adjudicator made a partial award to Mr Lee, who also bore responsibility for purchasing products he did not understand.
Key Learning Points
For financial institution representatives:
Evaluate product suitability in the context of the customer’s overall financial situation, especially any prior financial commitments or debts.
When a loan is involved, carefully review the credit risk profile of the customer and the customer’s ability to pay over the long term.
Communication with customers should be fair and balanced so customers understand what they are getting into. This is especially when products are sold together (e.g. insurance and financing).
For consumers:
Take time to understand before committing. Ask questions if anything is unclear.
Consider involving a trusted individual when making financial decisions, especially for unfamiliar products.
Be aware that premium financing involves taking a loan to pay for an insurance policy. Interest rates may rise and increase monthly payments in the long term.
Make use of the free-look period (typically 14 days) to review the policy and decide whether to proceed or cancel.
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