The Commonwealth Bank (CommBank) will refund over 65,000 customers approximately $10 million, after selling them unsuitable consumer credit insurance (CCI).

CCI is a type of add-on insurance, sold with credit cards, personal loans, home loans and car loans. It is promoted to borrowers to help them meet their repayments if they become sick, injured or involuntarily unemployed.

CommBank sold 'CreditCard Plus', insurance for credit card repayments, to 65,000 customers who were unlikely to meet the employment criteria and would be unable to claim the insurance.

CommBank is also refunding approximately $586,000 in premiums to around 10,000 customers after it over-insured these customers for Home Loan Protection CCI taken out with a Commonwealth Bank home loan, resulting in the over-charging of premiums.

ASIC Deputy Chair Peter Kell said it was unacceptable that customers were sold insurance that did not meet their needs. 'One of ASIC's priorities is addressing poor consumer outcomes associated with add-on insurance, including CCI. Consumers should not be sold products that provide little or no benefit, and banks should have processes in place that ensure this.'

CommBank and CommInsure identified and reported this issue to ASIC.

CommBank will be contacting eligible 'CreditCard Plus' customers shortly.

Background

CreditCard Plus

CommBank will remediate customers who were sold 'CreditCard Plus' between 2011 and 2015 who were either:

• unemployed; or
• students.

They were therefore not eligible to claim for unemployment or temporary and permanent disability cover provided by the CCI.  The vast majority of customers were students with lower credit card limits.  

Home Loan Protection

Between 2007 and 2015 CommBank did not adjust the amount of cover under the CCI policy where the amount the customer borrowed was less than the original loan amount they applied for.

In charging these customers premiums based on the loan amount applied for rather than the amount that was actually borrowed, CommBank charged these customers for more cover than they needed under the policy. In some cases, cover was also provided and paid for before a loan was drawn down.  CommBank will continue its review to ensure all affected customers are identified and remediated.

ASIC has previously taken action against Westpac for similar conduct (refer: 15-318MR Westpac to refund premiums for unwanted insurance cover).

ASIC's CCI work

ASIC has recently brought together representatives from the banking industry and consumer advocates to improve outcomes for consumer credit insurance, with the establishment of a Consumer Credit Insurance Working Group.  The CCI Working Group will progress a range of reforms, including a deferred-sales model for CCI sold with credit cards over the phone and in branches (refer: 17-255MR).

ASIC will also review the past CCI sales practices of other banks in light of our previous work and recommendations. In October 2011, ASIC issued Report 256 Consumer credit insurance: A review of sales practices by authorised deposit taking institutions (REP 256) which included a number of recommendations by ASIC, after the review found a number of deficiencies in the areas of sales practices, disclosure, training programs and monitoring.

ASIC has had a significant focus on add-on insurance products. In 2016, ASIC released three reports covering its review of the sale of add-on insurance through car dealerships, which found that the insurance is expensive, of poor value and provides consumers very little or no benefit (REP 470, REP 471, REP 492). ASIC will shortly release a consultation paper to consult on proposals in relation to add-on insurance products sold through car dealerships, including a deferred-sales model for this channel. On 2 August 2017, ASIC announced that QBE Insurance (Australia) Ltd would refund more than 35,000 add-on insurance customers up to $15.9 million they paid for insurance bought through car dealerships where the insurance provided little or no benefit (17-258MR).

ASIC's MoneySmart website has useful tips to help consumers consider what to look out for before deciding whether to buy CCI.