- A recently released report from ASIC found consumer credit insurance (CCI) has consistently failed consumers
- The review of 11 banks and other lenders found that CCI offered extremely poor value for money.
- The sales practices used to sell CCI were found to have caused harm to consumers.
The finance industry regulator ASIC has released a report this week slamming the banks over the value of consumer credit insurance (CCI) which was sold to people as a way to cover credit card minimum repayments in case of unemployment, sickness or injury. $100 million is expected to be paid back to over 300,000 consumers.
What is CCI?
Consumer credit insurance (CCI) is an optional policy designed to provide cover for cardholders if they can’t meet their minimum card repayments due to unemployment, sickness or injury. Or to pay the outstanding loan balance upon someone’s death.
ASIC says it wasn't value for money
In December 2017, the Australian Consumers and Investments Commission (ASIC) sought to address if harm was caused to consumers from CCI sales.
In the report ASIC found that when CCI was sold with credit cards the value of the insurance was "extremely poor", with credit cardholders receiving just 11 cents in claims for every dollar paid in premiums.
Across all CCI products (including on home and personal loans) the results were a little better at 19 cents being recovered in claims for every dollar paid.
Still a poor result in the eyes of ASIC.
High pressure sales practices harmed consumers
The review also looked into how CCI was sold to consumers between 2011 and 2018. The findings aren’t pretty.
- Some consumers were sold CCI even when they would be ineligible to claim under the policy
- High pressure selling and unfair sales practices were used by telephone sales staff who were often incentives with commissions
- People were given personal advice that was not compliant leading people to take out unsuitable policies
Processes were lacking
Within the financial institutions that offered CCI, ASIC found that consumers were incorrectly charged for CCI.
This includes customers being charged for CCI even after their loan or credit card had been closed.
Many of the 11 lenders didn’t have consumer-focused processes that could help customers who were experiencing hardship to make a claim under their CCI policy.
"We are deeply troubled by the findings in our report, and the stories they tell of unfair practices occurring within Australia's largest and most well-known financial institutions. Lenders and insurers have had more than enough time to improve sales practices and provide better value for consumers. An inevitable consequence of these widespread failings and mis-selling practices will involve ASIC taking significant enforcement action against some of the entities named in our report," says ASIC Commissioner Sean Hughes
What happens next?
Investigations are continuing into suspected misconducted of several lenders, which will likely result in enforcement action.
ASIC is seeking to ban unsolicited outbound sales calls for CCI and expect all CCI lenders to incorporate the four day deferred sales model across all channels.
The report sets out important design and distribution standards for CCI sold by lenders.
Lenders and insurers are expected to meet these standards or cease selling CCI until they do. Lenders who have already pulled the pin on selling CCI include:
The work ASIC has done has led to a significant remediation program expected to exceed $100 million paid to over 300,000 consumers.
Already over $51 million has been paid to over 186,000 credit card consumers.
Have you been impacted by the sale of CCI? Let us know in the comments below.