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19-180MR ASIC finds unacceptable sales practices, poor product design and significant remediation costs in CCI sold by major banks and lenders
ASIC’s review of the sale of consumer credit insurance (CCI) by 11 major banks and other lenders has found that the design and sale of CCI has consistently failed consumers.
ASIC’s report (REP 622) highlights the very low value of CCI products and the unfair way they are promoted and sold to consumers. This work forms part of ASIC’s broader priority to address fairness to consumers and, in particular, harms in insurance.
ASIC’s review found that:
- CCI is extremely poor value for money – for CCI sold with credit cards, consumers received only 11 cents in claims for every dollar paid in premiums. Across all CCI products sold by lenders, only 19 cents was recovered in claims for every premium dollar which consumers paid.
- CCI sales practices caused consumers harm:
- consumers were sold CCI despite the fact they were ineligible to claim under their policy
- telephone sales staff used high-pressure selling and other unfair sales practices when selling CCI, and
- consumers were given non-compliant personal advice to buy unsuitable policies.
- Consumers were incorrectly charged for CCI, including being charged ongoing CCI premiums even though they no longer had a loan.
- Many lenders did not have consumer-focused processes to help consumers in hardship make a claim under their CCI policy.
ASIC Commissioner Sean Hughes said, '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'.
The problems identified in the review are being addressed by ASIC in the following ways:
- ASIC is undertaking investigations into the suspected misconduct of several entities involved in the CCI product market, with a view to enforcement action. The defendants to ASIC’s future action will be publicly identified at the time proceedings commence.
- Due to the consumer harms we have seen with the unsolicited outbound sale of CCI by telephone, we will shortly consult with all interested participants and consumers with a view to ASIC completely banning this practice.
- ASIC’s work has led to a significant remediation program expected to exceed $100 million paid to over 300,000 consumers. To date, over $51 million has been paid to over 186,000 consumers. ASIC’s work to secure further compensation will continue.
- We expect all CCI lenders to incorporate a four-day deferred sales model for all CCI products across all channels, not just those entities that subscribe to the Banking Code of Practice.
ASIC expects lenders and insurers to design and offer products with significantly higher claims ratios and will continue to collect and publish data to measure improvements.
'If we do not see early, significant and sustained improvement in the design and sale of consumer credit insurance, our next steps may involve the deployment of our new product intervention power where we see a risk of significant consumer detriment. We also will not hesitate to pursue civil penalties where there has been a failure by any lender or insurer to act efficiently, honestly and fairly. All options are on the table,' ASIC Commissioner Sean Hughes said.
ASIC's report also sets out important design and distribution standards for CCI sold by lenders. Lenders and insurers are expected to meet these standards or entirely cease selling CCI until they do. Several lenders have already ceased selling CCI.
Further, ASIC requires attestations from accountable senior executives that:
- the recommendations to address mis-selling have been implemented and are working effectively
- the minimum standards in ASIC’s report are being met, and
- the remediation programs are thorough and robust.
ASIC Commissioner Sean Hughes added, 'Regrettably, the ongoing systemic failings and misconduct we have seen in the CCI market demonstrate that a range of robust regulatory responses is required. ASIC is committed to address the unfairness to consumers and lack of transparency our report has uncovered. Product issuers and distributors in the CCI market need to start to put their consumers front and centre.'
In October 2011, ASIC issued Report 256 Consumer credit insurance: A review of sales practices by authorised deposit-taking institutions (REP 256), which made 10 recommendations about sales scripts, disclosure, training programs and monitoring systems to reflect best practice and reduce the risk that CCI may be mis-sold to consumers.
In August 2017, ASIC raised concerns about the way in which CCI was being sold. As a result, the Banking Code of Practice now has a four-day deferred sales period for CCI sold with credit cards and personal loans in branch or over the phone, effective 1 July 2019. However, this obligation only applies to those who subscribe to the Code.
In December 2017, ASIC commenced a review of the design and sale of CCI. We required the 11 lenders to undertake an independent review of their CCI sales practices and we collected detailed data about the way these products performed for consumers.
The lenders in ASIC's review are:
- Australia and New Zealand Banking Group Limited
- Australian Central Credit Union Ltd
- Bank of Queensland Limited
- Bendigo and Adelaide Bank Limited
- Citigroup Pty Limited
- Commonwealth Bank of Australia - Retail Banking Services and Bankwest
- Credit Union Australia Limited
- Latitude Finance Australia and Latitude Personal Finance Pty Ltd
- National Australia Bank Limited
- Suncorp-Metway Limited
- Westpac Banking Corporation