Banking Royal Commission: $45 million compensation award over junk insurance

Tens of thousands of Australians will receive a share of a $45 million compensation payout this morning from one of our major banks.

Paola Balla always trusted her bank to “do the right thing” – so when she was urged to take out insurance on a personal loan, she didn’t hesitate.

It was in 2015 when the Victorian mum of four’s family car broke down and she approached her local NAB branch for a loan to buy a second-hand vehicle.

At the time, she had been out of work for three years due to mental health issues, and her banker encouraged her to take out insurance on the loan, asking “what if you got sick again?”

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“I didn’t really think I needed the insurance. But I was led to understand if I took out the cover I would make a better candidate for the loan,” Ms Balla explained.

“Also I wanted to protect myself and my family in case something happened. Basically, my banker had told me it was a good idea and I trusted her.”

Last August, she received an email “out of the blue” informing her she was eligible to take part in a class action against the bank due to that insurance policy, which she initially assumed was a mistake.

“I didn’t know I’d been ripped off. I trusted my bank,” she said.

“But as I read more and talked to the lawyers running the case I realised the insurance I had been sold did not cover pre-existing illnesses.

“It would be worthless if I became mentally unwell again and had to stop working. And it wouldn’t have covered me if I became unemployed at the end of my contract.”

Ms Balla was left feeling “angry” as the money she had spent on the insurance was a “waste”.

Paola Balla is one of thousands of Aussies who participated in the class action. Picture: Supplied

She said all of the participants in the class action “had been pressured or tricked by NAB into insurance products that were all but worthless, probably because we seemed like easy marks”. “Standing with these people, fighting back, and winning against a giant like NAB felt great,” she said.

“I know that if it wasn’t for this class action, I’d be paying for that worthless insurance to this day. I would never have known I had been ripped off and even if I had worked it out, I certainly wouldn’t have had the means to pay lawyers.”

The class action was first launched in September 2018 by Slater and Gordon against the National Australian Bank (NAB) and its subsidiary MLC Limited on behalf of customers who were miss-sold consumer credit insurance for their credit card or personal loan for $49.5 million.

On May 8 this year, Justice Lee of the Federal Court approved the settlement with NAB and MLC Limited and today the money will begin to arrive in victim’s bank accounts.

Slater and Gordon senior associate David Barda told news.com.au it was the first compensation to come out of the banking royal commission, which he described as “quite significant” and a “really big win”.

“Last year almost 50,000 people struck a deal with NAB in relation to allegedly junk insurance products and today, those people will wake up with compensation in their bank accounts, so it’s a good news story during a pretty grim time,” he said.

“The kind of people getting compensation for these junk insurance products they were sold are pensioners, students and insecure workers so they are exactly the type of people most affected by the pandemic – it is a really welcome time for them.

The class action was first launched in 2018 by Slater and Gordon against NAB and MLC Limited. Picture: Hollie Adams/The Australian

“It shows how valuable class actions are for ordinary people – they wouldn’t have had the power to bring action against a big bank on their own, but they banded together and won.”

Mr Barda said individually, many people felt powerless to take on a “faceless bank” but that together, the victims were “really powerful” – and that the money had arrived at a time when many people were “really struggling” as a result of the coronavirus-fuelled recession.

“If you were sold a junk product and you paid a $1000 premium you shouldn’t have, that’s a really big deal for pensioners, students or those in insecure employment,” he said.

“It shows how powerful class actions are to right wrongs and keep corporations accountable.”

In a statement issued in May when the settlement was approved, NAB chief legal and commercial counsel, Sharon Cook, said it was an important step forward.

“We are pleased with the Federal Court’s decision and to be able to resolve this matter for our customers and shareholders,” Ms Cook said.

“As we have acknowledged, it is important to resolve past issues so that we can rebuild trust with our customers and the community.”