The Lemoine Act, which went into effect on June 1, 2022, is an in-depth reform of the mortgage loan insurance market. A huge step forward for consumer rights, this new regulation also has setbacks: an increase in prices and a rapidly changing risk assessment.
Change the borrower’s insurance at any time
Beginning June 1, any new borrower can terminate their mortgage credit insurance at any time upon signing the loan offer. The system will be applied to contracts in progress from September 1.
This powerful measure, advocated for years by consumer associations and insurance companies, is a source of significant savings for borrowers. They are often forced to take out bank insurance to get their financing on time, thus regaining purchasing power by replacing the existing contract with a three times cheaper offer with equivalent guarantees.
By facilitating the termination, the legislator opens up new horizons for alternatives thanks to the easing of the banking monopoly to secure the borrower. Indeed, competition between the various players will intensify in favor of consumers.
Health survey removal: a price risk
The Lemoine law stipulates the end of medical check for loans of less than €200,000 to be repaid before the borrower reaches 60 years of age, a universal measure for people with the disease. Prior to this law, the medical questionnaire generated strong discrimination related to patients’ and former patients’ health histories, which resulted in significant additional costs, exclusion of warranties and even denial of insurance.
Without any health data in the sector to back up their prices, insurance companies are forced to pool risk, at the expense of young, healthy profiles who usually pay the lowest cost to insure their loans. We are moving from one form of discrimination to another under the guise of a commendable effort to inclusion. Professionals talk about an increase in rates between 5% and 20%, which more often punishes young workers with low incomes compared to other borrowers.
The entry form will undoubtedly evolve to include the data previously entered in the health questionnaire: smoking and playing dangerous sports. Occupational risks are another major factor, as is travel. For example, those who smoke and drive a lot will pay dearly for their insurance if they don’t have to fill out a health survey.
What has been presented as a measure in favor of purchasing power may turn out to be counterproductive due to excessive exchange far from being favorable to the greatest number.
The right to be forgotten: Beware of fraud
The third major measure of the Lemoine Law, the minimum period for benefiting from the right to be forgotten has been reduced from 10 to 5 years and relates to ex-cancer patients, and now people who have been cured of hepatitis C. After this period, eligible borrowers do not have to declare their previous illnesses in health questionnaire.
Former patients can now access real estate without waiting for the often deterrent period to realize a real estate project. And if the Cancer Control League welcomes this measure, it is calling on public authorities to be vigilant about law enforcement. Attempts to circumvent the disappearance of the health questionnaire in the context of loans of less than 200,000 euros that occur before the borrower’s 60th birthday and the lack of declaration of cancer or hepatitis C.
Thus, participation in insurance can be conditional on the conclusion of a savings insurance contract subject to a medical questionnaire, or guarantees that are activated after a long waiting period.
It should be noted that banks maintain the assessment of medical risks indirectly through the study of income, which includes in particular mutual insurance premiums and daily allowances for sick leave or long-term sick leave.
Since June 1, at Magnolia.fr, we process three times as many requests for loan insurance replacement, indicating that borrowers have understood the financial risks of the Lemoine Act. The volume should explode as of September 1 with termination circulating at any time.
In the meantime, it is appropriate to question the strategies the banks have put in place to avoid bleeding. The reform provides for penalties of up to 15,000 euros for facilities that violate the rules. The past has shown that they are never enforced against powerful banking lobbyists.