Charging interest on money already paid - legal?

Twig55

Hi.

I work for a company that shall remain nameless, but I have found out something I think is morally dubious at best, possibly illegal at worst. I would like to run this by anyone who may have more knowledge of the law.

The company offers insurance and policyholders can pay their premium over 10 months plus a deposit paid immediately. I would expect that any interest calculation would be made on just the 10 instalments. However, the company is including the deposit in their calculations, which means they are charging 3% of the money already paid at the point of inception.

Is that legal?

Browntoa

If their terms and conditions say so , then yes

Twig55

Browntoa wrote: »

If their terms and conditions say so , then yes

Wow, that was fast. Thanks.

I'm surprised that it is legal, simply because interest is usually only charged on money not yet received. As it's legal, I shan't raise it as an issue with my bosses.

Old_Lifer

The premium will be an annual premium due at the start of the year but they are letting you pay in instalments so the interest will be calculated from the start.


With most insurance policies (except very short term policies) the premium is annual but a small loading is applied to let you pay monthly.

davidwatts

Shouldn't be a problem as long as they give the appropriate information about how the credit charge is calculated and the APR etc.

A firm could choose to charge (for example) 5% of the total premium or 5% of the premium minus initial payment amount.

Old_Lifer

Your 'deposit' appears to be the initial two monthly premiums in which case the first premium was paid late and the second may have been. In this case charging interest on the initial payment would make sense.



It is common for payments to start late where the policyholder has arranged to pay the premiums by direct debit or by deduction from salary.


It is important to distinguish between a monthly premium and a monthly instalment premium. In the case of an instalment premium, it is in effect an annual premium where the insurer is allowing you to pay in twelve instalments each year. The insurer can recover the cost by either a small loading or by charging interest i.e giving you credit.


I have no idea of the significance of 5 per cent in the above post. Has someone introduced a cap on interest charged that I haven't heard about?

jonesMUFCforever

OP why not put your observation in the staff suggestion box - at least they could look at it.