FSA and OFT give green light to ‘ethical’ loan protection

Following the paper’s publication, which clearly distinguishes that debt waiver products are not insurance, CUNA Mutual –leading global insurers to the mutual sector and credit unions - are simultaneously launching a new waiver product into the UK market.

CM Waiver will assist the mutual sector protect vulnerable borrowers by filling the ‘protection gap’ of unsecured loans left in the wake of the PPI scandal.

The lack of trust in the insurance market following PPI mis-selling has left almost 96% of borrowers without a means to protect themselves should they fall ill or be made redundant.

CUNA Mutual have been key contributors to the changes needed in the lending sector to protect borrowers, and its CM Waiver product is specifically designed in line with the detailed requirements outlined by the FSA and OFT yesterday.

CM Waiver will prevent borrowers from falling victim to the vicious cycle of debt and home repossessions. The CM Waiver has been designed with fairness and transparency in mind- requisites highlighted in the OFT/FSA guidance.

The paper states: “In particular, is that there should be adequate transparency to consumers regarding the nature, price and implications of such products. Transparency is at the heart of the CM Waiver, with no small print to catch borrowers out.”

The CM Waiver is a solution unlike any other seen in the UK market before, and CUNA is currently the only insurer offering the product to lenders. It enables the mutual sector to spearhead the drive to a fair, ethical and transparent way of protecting those who borrow.

It ensures responsible lending, necessary to restore trust in financial services, and provides an opportunity for the mutual sector to distinguish itself as innovative, and distance itself from the banking sector, currently drowning in PPI mis-selling claims.

Waiver works primarily by switching the responsibility of settling the monthly loan repayment from the borrower, onto the lender. The CM Waiver is a benefit built into the loan, allowing lenders to waive loan repayments for a set period of time in the event of loss of income due to sickness, accident or unemployment. The lender allows for the borrower’s inability to repay the loan, meaning that the customer doesn’t have to insure their ability to pay.

As a business to business product, consumers will never be aware of CUNA Mutual’s involvement, but will be assured by their loan provider they will be protected. CUNA Mutual is the leading global provider in this market, having offered a debt waiver in the US for 10 years.

With levels of protection among consumers plummeting in recent years[1], due to the stringent new regulations in selling PPI, and in the midst of salary freezes and rising levels of unemployment, an effective form of protection is needed now more than ever. Beneficial to both lenders and consumers, CUNA Mutual’s waiver product protects consumers during hard times, while lenders have the confidence to lend as the chance of default is removed.

Paul Walsh, CEO of CUNA Mutual, said: “The FSA/OFT green light for the lending sector to move forward is a lifeline to the lending industry which needs to be embraced with both arms. The care and design that we as specialists bring to consumer protection is a critical building block in providing consumer protection the right way.

“Despite no single FOS complaint being upheld against CUNA Mutual in relation to PPI mis-selling, we are committed to ensuring a debt waiver product is available in the UK, to protect both borrowers and lenders in this challenging economy. Brand new to the UK market, we are confident the CM Waiver has the power to rebuild consumer confidence in the wake of the PPI scandal and help stabilise both the financial sector and economy.”

Walsh added: “Protection has never been more vital as salaries stagnate, unemployment soars and the cost of living goes through the roof. CM Waiver is an obvious and transparent solution, and a way for the mutual sector to show leadership and innovation in a market where it cannot compete on interest rates.”