ASIC plans to take “significant enforcement action” against 11 lenders that inappropriately sold consumer credit insurance, and force remediation of over A$100m.
ASIC (the Australian Securities and Investment Commission) has published a new report highlighting the “extremely poor value for money” of CCI (consumer credit insurance) products and the unfair way they are promoted and sold to customers.
CCI products are usually offered as an add-on to a mortgage, credit card or personal loan to provide cover in the event repayments cannot be made due to job loss, sickness, injury, death, or if a credit card is stolen.
But, in a review of the practices of 11 major banks and other lenders from 2011 to 2018, ASIC found that for CCI sold with credit cards, only 11 cents was paid out for every dollar in premiums collected. Across all CCI products, only 19 cents was paid for every dollar in premiums.
ASIC also noted widespread mis-selling, where consumers were given non-compliant personal advice to buy unsuitable policies, and sold CCI despite not being eligible to actually make claims. High-pressure and other unfair telephone sales tactics were also used. In some cases, consumers continued to be charged for CCI even when they no longer had a loan outstanding.
“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,” said ASIC Commissioner Sean Hughes.
The lenders currently under review are the big four – ANZ, CBA, NAB and Westpac – as well as Australian Central Credit Union, Bank of Queensland, Bendigo and Adelaide Bank, Citigroup, Credit Union Australia, Latitude Finance Australia and Latitude Personal Finance, and Suncorp.
ASIC is investigating suspected misconduct at these firms with a view to taking enforcement action. It may also consider deployment of its new product intervention power where it see a risk of significant consumer detriment, and will not hesitate to pursue civil penalties. “All options are on the table,” Commissioner Hughes said.
The lenders will be required to remediate over 300,000 affected consumers with over AUD 100 million (USD 70 million). So far, over AUD 51 million has already been paid out to over 186,000 consumers. An update on the remediation programme will be provided later in the year, ASIC said.
According to an AFR report, NAB and Westpac have stop selling CCI products, while ANZ and CBA will continue to offer them with home loans.
ASIC plans to issue a consultation with a view to “completely banning” the practice of unsolicited outbound sales of CCI by telephone.
Currently the Banking Code of Practice incorporates a four-day deferred sales model for all CCI products across all channels. ASIC expects all CCI lenders to do the same, even if they are not subscribed to the Code.