Banks could be forced to insure customers against bad debts under a new European Commission (EC) proposal.

A discussion document, intended to update the EC directive on consumer credit, suggests lenders take out “compulsory and comprehensive” insurance against the risk of default.

The advantages are:

  • each consumer could be insured against certain events of life
  • the lender's risk would be smaller and
  • the costs minimised because the insurance contract would be negotiated by the lender and the risk distributed across the portfolio.

    Insurers, however, are lukewarm about the proposal, with the Association of British Insurers (ABI) claiming that customers who do not take want the insurance cover will end up subsidising the others.

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