Loan repayments upon borrowers death?

Fatfish_2

Hi folks - this is my first post, so please be gentle!

I've searched the forum but not found what I'm looking for. It's regarding unsecured loans and the banks right to chase next of kin for payment in the event of the borrowers death.

I have an existing loan with Cahoot and I approached them tonight about getting an unsecured personal consolidation loan. Looking at the Payment Protection Insurance (PPI), I noticed that it increased my payments by £42 per month on top of the loan repayment! Something I'd rather avoid obviously.

When I enquired with Cahoot customer service as to whether the lender could chase payment from my next of kin in the event of my death (if I didn't take out PPI), the customer service advisor confidently replied that yes they could and would.

I took no further action and decided to call back later once I'd thought about it. In the meantime, I called the Consumer Credit Counselling Service (charitable body setup to offer help and advice). They advised me that the bank wasn't allowed to chase my next of kin for payment and that it would be written off!

When I called back and spoke to a second advisor, they also confirmed that the bank couldn't chase my next of kin should the worst happen and that the debt would be written off.

As I'd received conflicting replies, I asked to speak to a manager. The manager called back about an hour later and after explaining the situation to her, she catagorically told me that yes they could chase for payment, but it's rare that they do. She told me it's entirely at the discretion of the bank/lender. She said that their parent company (Abbey National) would normally chase for payment in this instance, but that Cahoot 'probably' wouldn't, but couldn't say for certain?!

She really wasn't very helpful and was obviously annoyed at my query! Too much hassle for her I think.

However, she did put me on hold and told me she'd check with their legal department. After 5 minutes of holding, she came back to say yes they definately could chase for payment (baring in mind nobody was given as a guarantor!) and that banking legislation gave them the right to do so. However, she had absolutely no idea what legislation allowed this and told me to contact the FSA.

I have emailed the FSA and am awaiting a response - but was wondering if anyone here knew the answer or could point me in the direction of the legislation that gives the bank this right? If there is such a thing!

Sorry for the long post - I know it's a bit much, but thought I'd best give all the deatails. Thanks very much in advance for any help or advice!

happyformonths

Hi,

I think you were right to query what they said.

When I have investigated this (my own research via CAB website etc) my conclusion has been that family members are NOT responsible for your debts after death, unless they're already part of the loan agreement in some way i.e. jointly named or a guarantor.

However, loan companies are likely to *try* and chase them, just on the off-chance that the poor grieving relatives don't know that they're not liable, and just pay up for a quiet life. Nice innit?

I am not 100% certain that the loan company wouldn't have a leg to stand on, but I'm pretty close.

NB On Egg's website, one of their justifications for offering PPI on their loan is that "in the event of your death, the loan would be paid off. Which would give your family one less thing to worry about". Note the slimy, slippery way they've avoided claiming that your family HAS to pay off the debt whilst actually implying that they do... :rolleyes:

I bet if you post this question on the Debt-Free Wannabe board, which is a bit busier than this one, you'll get a more definitive answer and possibly legislation references.

HFM

Croasdaile

My understanding of the position you describe is as follows:
Where the next of kin are not a party to the unsecured loan arrangement then the bank cannot pursue them for any outstanding amounts. However, unless specifically excluded in the loan T's & C's (usually by way of an insurance policy) the bank would have a legitimate claim against the estate of the deceased. If there were no funds available then the outstanding sum would be written off.

Fatfish_2

Thanks folks. That's very interesting to hear. I will check out the Debt-Free Wannabe board and see if anyone else can shed some light on this for me - and I'll also speak to my CAB.

I don't have an estate as such, but should the worst happen, they're welcome to it! No house (renting unfurnished) and no will. My parents have barely got a penny to scratch together either.

EGG isn't the only company to use that line about the loan being cleared in the event of my death. They all use a variation on the theme, but it basically boils down to the same statement - take our insurance and we won't hassle your family during their berevement. You're right though - they are slimy and slippery!

Thanks again folks.

kevin_M

if the loan is only in your name they can only take money out of your estate.. they cannot chase family members as they never signed the agreement..

the reason the people at the call center prolly try and sell you it is BONUS

regularsaver1

I understand that they can't chase next of kin

I suppose going back to you deciding if the ppi is for you or not - is that ppi is not only death benefit - but ask yourself what you would do should you have an accident / lose job ect in order to make the payments

if you would like some cover then companies elsewhere may be able to help

Turtle

Hi, yes I agree with this. The bank I work for would ask if funds available from the estate. If there are the bank can expect the loan to be repaid. If there are no funds from the estate we would ask for this in writing. Once confirmed it would go to the Credit department to see if they agree to it being written off. I dont know of any cases where this hasnt been the outcome. If its a joint loan then its obviously a bit different and the joint party would still be expected to make the repayments.