The corporate watchdog says it has clawed $160m in compensation out of banks and other lenders who sold useless insurance to more than 434,000 credit card customers and other borrowers.
Eleven lenders are about to pay the final tranche to customers they ripped off for eight years by continuing to sell them so-called “junk insurance”, often using high-pressure tactics, despite being warned in 2011 that there were problems with the products.
The institutions making payouts include the big four banks – ANZ, the Commonwealth Bank, NAB and Westpac – as well as Bank of Queensland and Bendigo Bank.
Controversy over the dodgy products reached a peak in 2018, when the Commonwealth Bank’s Matt Comyn admitted to the banking royal commission that the bank had sold worthless credit card insurance to more than 60,000 customers.
The insurance was worthless to the customers because it protected them if they became unemployed, but they were already jobless.
Comyn, who was head of retail banking at the time but is now the bank’s chief executive, told the commission he raised the idea of stopping sales of the shonky insurance with then-chief executive Ian Narev only to be told to “temper your sense of justice”.
Australian Securities and Investments Commission deputy chair Karen Chester said the payout showed it was “unfair to consumers and ultimately costly to business to sell junk insurance”.
“There is nothing fair about selling ongoing consumer credit insurance to a 65 year old when eligibility falls away at 66,” she said.
“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.”
The chief executive of the Consumer Action Law Centre, Gerard Brody, welcomed the payouts.
“It’s a reminder that too often banks have put profits ahead of their customers,” he said.
He said Calc identified insurance sold as an add-on to credit or other goods and services, such as cars or motorbikes, as a big problem five years ago.
“We saw many people being sold policies they simply could never claim on, and thousands not even knowing what they’d been sold – lenders and dealers were tricky in bundling the sale of insurance into the sale of loan and some people thought it was compulsory to get approved for the loan,” he said.
Asic said the remediation program would be completed “shortly”, when the lenders made a final payment of $32m to 122,000 consumers.
Of the 434,000 compensation cases, more than half – 244,000 – relate to people who were sold policies they were ineligible to claim under or from which they were unlikely to benefit.
Some 48,000 customers were the victim of high-pressure or unfair sales tactics, while 57,000 were incorrectly charged.
Another 84,000 simply received no or very little value from the product.
None of the 11 lenders that have paid compensation are currently offering consumer credit insurance, although it is believed some financial institutions are interested in revitalising the now-moribund market.
Asic is believed to be in discussions with lenders about the measures they would need to take to make sure the products were not sold to people who could use them.
The regulator banned the use of call centres to sell life and consumer credit insurance in December, and from next April, banks were also to be required to make sure they were selling products to customers who could use them under so-called “design and distribution obligations” recommended by the royal commission.
Along with other royal commission reforms these are to be pushed back by six months.
Brody said legislation specifically banning bundling junk insurance with other products had also been delayed because parliament had not been sitting regularly during the coronavirus crisis.
“We need this reform to pass parliament as soon as possible to prevent this type of scandal occurring again,” he said.
“Asic should also use its new design and distribution obligation powers as soon as possible, we’re concerned that this reform has also been delayed due to Covid-19.”
Asic is also working on new guidelines telling institutions how to best remediate customers they have hurt.
There have been years of bitter behind-the-scenes fights with banks and other finance companies over the terms of remediation programs in which corporate lawyers have tried to narrow the scope of compensation.
The endless stoushes have helped drag out the length of time taken to compensate customers, frustrating Asic officers.