Originally published in the Norton Rose Insurance Updater,
In summer 2009, the Bank of Italy (the Italian central bank)
published a set of instructions to be used by banks and other
financial institutions in calculating their Percentage Rate of
Charge ("Tasso Effettivo Globale") which they are
required to communicate to the Bank of Italy on a quarterly basis.
The Percentage Rate of Charge ("PRC") is the actual rate
applied by these institutions to their customers (ie in bank
accounts, mortgages, loans, etc) and should be distinguished from
the Annual Percentage Rate of Charge ("Tasso Annuo Effettivo
Globale") which provides a benchmark rate for consumers
entering into loans and is regulated by the Consumer Credit
Directive (2008/48/EC)(to be implemented by May 2010).
As the original instructions to financial institutions were not
clear, the Bank of Italy has recently published some questions and
answers which provide an explanation of the method to be applied in
order to calculate the PRC. In particular, the Bank of Italy has
provided guidance on when certain insurance coverage should be
included in the calculation. The Bank of Italy has made it clear
that the cost of insurance policies intended to provide cover for
the lending financial institutions in relation to borrower default
(such as a Collateral Protection Insurance) should be included. The
guidance also sets out categories of other insurance coverage which
should be included in the calculation. Certain mandatory insurance
policies, taken out in order to obtain loans, must be included;
whereas policies entered into alongside loans need only be included
in the calculation if their purpose is to provide surety for the
loan repayments (ie when the amount of the indemnity is equal to
the outstanding amount due from the borrower).
The new rules introduced under the instructions are likely to
have a significant impact on insurers offering products linked to
loans etc. Lending financial institutions will only be willing to
promote and distribute CPI products to the extent that the relevant
cost is not included in the calculation of the PRC. Where the PRC
is included, the financial product is likely to be less appealing
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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