ASIC sues Westpac over ‘unwanted’ credit insurance sales tactics
Controversial practice whereby consumers are sold “junk insurance” when they go to take out a home loan, credit card or even buy a plane ticket, will be examined by the courts, following a lawsuit of the corporate regulator against Westpac.
- ASIC sues Westpac for its sale of consumer credit insurance in 2015 to nearly 400 customers
- The practice has seen consumers sell insurance against the potential for default the moment they purchase credit cards.
- Other industries, including travel, still practice some form of this selling practice.
ASIC is suing the big bank for its sale of consumer credit insurance (CCI) to consumers, allegedly without their consent.
This type of insurance typically covers consumers if they are unable to repay their minimum loan amount due to unemployment, illness, or injury.
It is usually optional and sold by lenders to consumers with a credit card, personal loan, or home loan.
ASIC released a report in 2019 that criticized CCI and found that it offered consumers “extremely poor value for money.” This followed the radical recommendations of the Royal Banking Commission on the regulation of this form of insurance.
ASIC alleges that Westpac mis-sold CCI with credit cards and other lines of credit to nearly 400 customers “who had not agreed to purchase the policies” for several months in 2015.
ASIC is seeking returns and monetary penalties from the Federal Court where it brought the action.
Court documents filed by ASIC allege that Westpac sold the insurance without consent.
“He provided certain assurances to credit customers that they had not requested and had not agreed to acquire,” he said.
In a statement, Westpac said it “is examining these allegations carefully and is committed to working constructively with ASIC throughout the legal process.”
The Commonwealth Bank was also reprimanded in 2018 during the Royal Banking Commission for its sale of CCI to “tens of thousands of consumers”, including students, retirees and the unemployed, most of whom would not be eligible for no benefit from insurance.
Consumers get 11 cents back for the $ 1
Westpac’s decision to stop selling controversial insurance in 2019 came as ASIC investigated the sale of CCIs by Australia’s top 11 banks and lenders.
The ASIC report released in 2019 found that customers only received 11 cents for every dollar spent on CCI bonuses linked to their credit cards.
For all of CCI’s products, including mortgages and personal loans, he found that customers still only got back 19 cents for every dollar in premiums they pay.
Cat Newton, policy manager at the Consumer Action Law Center, told ABC News that the practice of selling insurance to people they didn’t need was “rampant” and targeted consumers at the point of sale vulnerable to ” pressure dynamics ”.
“The seller is actually adding junk,” she said.
“You are there and focused on the main thing that you are there to buy. There are these subtle pressures to close the deal.
“In some cases, banks and car dealers will suggest or help you point towards the ultimate insurance product.
“People don’t even know they have failed insurance.
“A lot of people already had coverage for (ICC insurance coverage) through their superannuation. It was sold to people who never even needed it.
“And these policies are always flogged on people.”
Who still sells “junk” insurance?
In addition to its legal action against Westpac, ASIC has also worked to recover money from major banks and lenders for consumers stung by CCI.
It has so far recovered $ 250 million in repairs from 11 major banks and lenders for 580,000 consumers. That’s an average of $ 430 for each customer.
The Australian Banking Association also introduced a code of practice for the use of CCI by the industry in 2017.
The code says banks should give consumers a four-day cooling-off period after taking out a credit card or loan before providing them with additional insurance.
The ABA told ABC News that while some banks, like Westpac, no longer offer CCI at all, others still do.
Cat Newton of CALC said the practice of selling insurance to people they might not need at the point of sale is still common in the travel industry and the used car industry.
Consumers will most often refer to it as the vacation or in-flight travel insurance offered to them when they buy airline tickets online or even from a travel agent.
“You are not there to buy insurance. You are there to buy a plane ticket,” Ms. Newton said.
The federal government has already approved industry-wide reform that will see the four-day cooling off period enshrined in law.
This regulation is expected to come into force in October.
However, the federal government has consulted on granting certain industries an exemption over the cooling off period and has signaled that it intends to do so for travel insurance products and third party coverage. compulsory (CTP) for motor vehicles.
The Treasury confirmed to ABC News on Thursday that it would exempt travel insurance products from the deferred sale mechanism.
Ms Newton said this means travelers will always be vulnerable to purchasing insurance they may not need, even with the regulations.
“This will mean that travel agents and airlines will still be able to sell travel insurance until the end of a flight or vacation purchase, and it won’t give people time to consider whether this is the right insurance for them. “