Consumer credit insurance, which is often sold by lenders to borrowers when they take out a mortgage, has copped a lashing from the corporate regulator for failing Australian investors.
Typically, consumer credit insurance (CCI) provides cover for investors if they are unable to meet their minimum loan repayments due to serious life events such as death, unemployment or injury.
The results of a review of the market by the corporate regulator were scathing.
Overall, the ASIC report found that:
- Consumers were sold CCI despite the fact they were ineligible to claim under their policy.
- Consumers were incorrectly charged for CCI, including being charged ongoing CCI premiums even though they no longer had a loan.
- Telephone sales staff used high-pressure selling and other unfair sales practices when selling CCI.
- Consumers were given non-compliant personal advice to buy unsuitable policies.
- CCI is “extremely poor value for money”, with consumers receiving 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 that consumers paid.
- Several lenders did not have consumer-focused processes to help consumers in hardship 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,” ASIC said.
“Lenders and insurers have had more than enough time to improve sales practices and provide better value for consumers,” ASIC said.
“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.”