Commonwealth Bank drops credit card and personal loan insurance

Commonwealth Bank has canned its credit card and personal loan credit insurance products.

Commonwealth Bank has canned its credit card and personal loan credit insurance products amid concerns customers may be barred from claiming on the policies.

The action came a day after the corporate watchdog revealed it was monitoring the banking sector over its sale of insurance for personal loans due to the sector’s failure to expand its add-on insurance reforms beyond credit card products. It also heads off any possible fallout from the royal commission into banking and ­financial services, which will put CBA’s consumer credit insurance under the microscope next week.

CBA said it would be scrapping its credit card plus and personal loan protection policies after a ­review of its consumer credit ­insurance products. The bank said the changes required to withdraw the product from the market would start immediately and would be completed by June 30. Existing customers would still be covered under their policies and CBA would continue to offer its home loan insurance product to new and existing customers.

“Many customers have relied on these products during very stressful times in their lives,” ­incoming CBA chief executive Matt Comyn said. “But we have found it hard to achieve the right balance between simplicity and accessibility on the one hand and limiting the product to the right group of target customers on the other hand,” he said. “We have concerns that some customers who have been sold these products may not have been eligible to receive all of the ­employment-­related benefits. We have also sought consumer groups’ views on our concerns and they agree.”

CBA said it would contact customers who could be affected by the sale of useless policies and it had set aside about $16 million for refunds, including interest, to an estimated 140,000 customers of the credit card and home loan ­insurance policies.

Appearing before a Productivity Commission hearing in Melbourne yesterday looking at competition in the ­financial system, Australian Securities & ­Investments Commission head of insurance and credit Michael Saadat said the banking sector had more work to do to shore up its controversial consumer credit insurance businesses.

In its revamped code of practice, the Australian Bankers’ ­Association has pledged to introduce a cooling-off period before tellers and salespeople can sell add-on insurance products with credit cards, which covers consumers if they get sick or lose their job.

An investigation by ASIC found many consumers were not aware they had been sold the ­insurance, and often customers were ineligible to claim on the policy they had been sold. Under the changes to the code of practice, banks are still allowed to sell insurance with credit cards online and with other products such as home loans and personal loans.

CBA recently refunded more than 65,000 customers about $10m, after selling them unsuitable consumer credit insurance, sold with credit cards, personal loans, home loans and car loans.

Action by the corporate regulator has so far clawed back more than $120m in refunds for ripped-off consumers who were sold dodgy add-on insurance in car dealer yards.