The controversial practice of selling “garbage insurance” to consumers when they go to take out a home loan, credit card or even buy a plane ticket will be scrutinized in court following the actions of the corporate regulator against Westpac.
ASIC is suing a large bank for selling it consumer credit insurance (CCI), allegedly without their consent.
This type of insurance usually protects consumers if they cannot pay the minimum loan amount due to unemployment, illness or injury.
It is usually optional and is sold by lenders to consumers using a credit card, personal loan, or home loan.
In 2019, ASIC released a report that sharply criticized CCI and found it was giving consumers “extremely low value for money.” This followed broad advice from the Royal Banking Commission to regulate this form of insurance.
The ASIC claims Westpac incorrectly sold CCI with credit cards and other lines of credit to nearly 400 customers “who did not agree to buy policies” within months ago in 2015.
The ASIC is demanding statements and monetary fines from the federal court it is filing with.
Court documents submitted by ASIC allege Westpac sold insurance without consent.
“He provided loans to clients with certain insurance, which they did not ask for and did not agree to purchase,” – said in the message.
“Because the insurance deliveries were unsolicited in each case, customers were not required to pay premiums, but Westpac nevertheless deducted premiums from customers’ credit accounts.”
Westpac said in a statement that it “is considering these claims carefully and intends to work constructively with ASICs in the litigation.”
“Westpac hasn’t sold CCI products since 2019.”
The Commonwealth Bank was also reprimanded in 2018 by the Royal Banking Commission for selling CCI to “tens of thousands of consumers,” including students, retirees and unemployed people, most of whom were not eligible for any insurance benefits.
Consumers get 11 cents back for $ 1.
Westpac’s decision to stop selling controversial insurance in 2019 came to ICU investigating the CCI sale of 11 of the largest banks and lenders in Australia.
An ASIC report released in 2019 showed that customers only received 11 cents for every dollar spent on CCI premiums associated with their credit cards.
For all CCI products, including mortgages and personal loans, customers still received only 19 cents for every dollar of premiums paid.
Consumer Action Law Center senior lawyer Cat Newton told ABC News that the practice of selling insurance to people they don’t need was “widespread” and targeted consumers at vulnerable “pressure” points of sale.
“The salesperson is effectively adding junk,” she said.
“You are there and focused on the main thing that you want to buy. There is this subtle pressure to close the deal.
“In some cases, banks and car dealerships offer or help you choose the most effective insurance product.
“People don’t even know they get unexploded work insurance.
“Many people already had coverage (CCI coverage) during their retirement age. It was sold to people who don’t even need it.
“The garbage insurance problem affected the entire industry. It was a joke and everyone was involved.
“And this policy is still with people.”
Who is still selling junk insurance?
In addition to legal action against Westpac, ASIC is also working to get money back from major banks and lenders for consumers vulnerable to CCI.
So far, he has received compensation in the amount of $ 250 million from 11 major banks and lenders for 580,000 consumers. That’s an average of $ 430 per customer.
The Australian Banking Association also introduced a set of guidelines for the use of CCIs in the industry back in 2017.
The code says banks must provide consumers with a four-day cooling-off period after they apply for a credit card or loan before offering them additional insurance.
ABA told ABC News that while some banks like Westpac no longer offer CCI, others still do.
CALC’s Kat Newton said the practice of selling insurance to people that they might not need at the point of sale is still prevalent in the travel and used car industries.
Consumers most often know this as vacation or flight insurance that is offered to them when they buy plane tickets online or even from a travel agency.
“You are not here to buy insurance. You are here to buy a plane ticket, ”said Ms. Newton.
The federal government has already approved a reform of the industry, according to which the four-day cooling period will be enshrined in law.
This regulation is due to take effect in October.
However, the federal government has consulted to grant certain industries a cooling off exemption and has indicated that it intends to do so for travel and compulsory third party insurance (CTP) products for motor vehicles.
The Treasury Department confirmed to ABC News on Thursday that it would exempt travel insurance products from deferred sales.
Ms Newton said this means travelers will still be vulnerable to buying insurance they may not need, even with the rules.
“This will mean that travel agents and airlines can still ramp up their travel insurance sales until the end of their flight or vacation purchase, without giving people a pause to think if this is the right insurance for them.”