ASIC slams credit insurance
ASIC says consumer credit insurance (CCI) provides “extremely poor value for money”.
CCI helps cover loan or credit card repayments if someone is sick, injured or loses their job and becomes unable to make the minimum repayments.
Customers receive an average of 11 cents for every dollar they spend on CCI premiums linked with their credit cards, the Australian Securities and Investments Commission (ASIC) has revealed.
The regulator found that across all CCI products — including mortgages and personal loans — customers get back about 19 cents for every dollar on the premiums they pay.
The authority says the industry is dogged by “unfair”, “high-pressure” sales tactics.
ASIC found “consumers were sold CCI despite the fact they were ineligible to claim under their policy”.
ASIC also identified significant levels of overcharging, with consumers often charged ongoing CCI premiums after they finish paying off their loans.
“These junk policies are touted as 'added protection' for people just in case things go wrong and they are unable to pay their [repayments],” Consumer Action Law Centre chief Gerard Brody said.
“The reality is too often people aren't actually covered by the policy they've paid for.
“They often don't even know they've bought insurance in the first place, and the pitiful payouts they do get from the policy aren't worth the paper they're printed on.”
ASIC says something has to change.
“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,” ASIC Commissioner Sean Hughes said.
“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.”
ASIC will soon announce specifically which banks or lenders it will sue in court proceedings.
The regulator will also ban unsolicited phone calls from salespeople selling CCI to unsuspecting customers.
“We will shortly consult with all interested participants and consumers with a view to ASIC completely banning this practice,” it said.