The financial regulator is threatening action against lenders including the major banks over the sale of add-on loan and credit card insurance (CCI) that “has consistently failed consumers”.
An Australian Securities and Investments Commission (ASIC) report released today found that consumer credit insurance represented extremely poor value for money and was regularly mis-sold.
ASIC’s report (REP 622) highlights the very low value of CCI products and the unfair way they are promoted and sold to consumers. This work forms part of ASIC’s broader priority to address fairness to consumers and, in particular, harms in insurance.
ASIC’s review found that:
- CCI is extremely poor value for money – for CCI sold with credit cards, consumers received only 11 cents in claims for every dollar paid in premiums. Across all CCI products sold by lenders, only 19 cents was recovered in claims for every premium dollar which consumers paid.
- CCI sales practices caused consumers harm:
- consumers were sold CCI despite the fact they were ineligible to claim under their policy
- telephone sales staff used high-pressure selling and other unfair sales practices when selling CCI, and
- consumers were given non-compliant personal advice to buy unsuitable policies.
- Consumers were incorrectly charged for CCI, including being charged ongoing CCI premiums even though they no longer had a loan.
- Many lenders did not have consumer-focused processes to help consumers in hardship make a claim under their CCI policy.
ASIC Commissioner Sean Hughes said, ‘We are deeply troubled by the findings in our report, and the stories they tell of unfair practices occurring within Australia’s largest and most well-known financial institutions. Lenders and insurers have had more than enough time to improve sales practices and provide better value for consumers. An inevitable consequence of these widespread failings and mis-selling practices will involve ASIC taking significant enforcement action against some of the entities named in our report’.
ASIC has warned lenders to clean up their act or face civil penalties over junk insurance, which was a focus of last year’s financial services royal commission and has led to refunds from the likes of Commonwealth Bank, QBE and Suncorp.