ASIC claws back $160m in ‘dud’ consumer credit insurance from 11 lenders

Total refunds from the big four banks and other lenders selling junk consumer credit insurance have hit $128m.

The 11 lenders include the big four banks as well as Bank of Queensland, Bendigo and Adelaide Bank, Citigroup, Credit Union Australia, Latitude Finance Australia and Suncorp. Composite picture: AAP

Total refunds from the big four banks and other lenders selling junk consumer credit insurance have hit $128m, with an additional $32m to roll into customers’ bank accounts soon.

The Australian Securities and Investments Commission has clawed back a total of $160m from 11 lenders, who were selling policies, which in some cases were returning as little as 6c in the dollar to affected customers while some found they were not eligible to make a claim at all.

ASIC deputy chair Karen Chester said 80 per cent of the cash had been refunded to 312,000 customers, with the additional $32m to be paid back to a further 122,000 soon.

The payouts come after the corporate regulator banned lenders cold calling customers to sell life insurance and consumer credit products in early January.

Ms Chester labelled the move a “realignment of the planets”, with the big banks and other lenders now erring on the side of generosity after receiving stinging rebukes from banking royal commissioner Kenneth Hayne a year ago.

“We’ve seen something akin to a realignment of planets since the Royal Commission. A commercial recognition that the longer term interests of companies and shareholders should be ultimately aligned to those of their customers,” Ms Chester told The Australian.

“We are seeing this in action across many financial institutions in today’s COVID-19 circumstances, where many financial services companies are trying to provide prudent forbearance to their customers and erring towards consumer generosity where they can reasonably and sustainably do so.”

Mr Hayne recommended that the hawking of insurance and super products be banned, in part due to the asymmetry of power and information between the seller and buyer.

Many customers were oblivious they had been sold a consumer credit insurance policy, while others signed up believing it was compulsory to receive a loan. And once they paid for their policy, they soon discovered it was worthless, with many senior Australians discovering they were ineligible to lodge claims.

“It’s both unfair to consumers and ultimately costly to business to sell junk insurance,” Ms Chester said.

“There is nothing fair about selling ongoing consumer credit insurance to a 65 year old when eligibility falls away at 66.

“There is nothing fair about selling insurance with involuntary unemployment cover to an unemployed worker. These sales practices were systemic and through ASIC’s work, hundreds of thousands of consumers like these ones, have been compensated.”

Ms Chester said new design and distribution obligations, which will begin in 2021, will further halt the selling of junk insurance, requiring lenders to be more customer-focused and targeted.

“Under the new design and distribution obligations, financial services providers will be required to design and sell products that are fit for purpose and better meet consumer needs.”

ASIC will also continue to collect and publish claims ratios to check how consumer credit insurance (CCI) products provide consumer value and ensure ongoing public transparency.

The 11 lenders include the big four banks as well as Bank of Queensland, Bendigo and Adelaide Bank, Citigroup, Credit Union Australia, Latitude Finance Australia and Suncorp. All lenders have since withdrawn consumer credit insurance products (CCI).

For the financial years 2011-2018, ASIC found that for CCI sold with credit cards, consumers received 11c paid claims for every dollar paid in premiums. Across all CCI products, 19c was paid to consumers as a proportion of insurance premiums.

But Consumer Action Law Centre chief executive Gerard Brody said some customers were receiving as little as 6c in the dollar.

“You could see that it was very profitable to the insurers and the lenders that sold these policies. They were being paid for each policy they sold but they weren’t very valuable to the customers,” Mr Brody said.