Commonwealth Bank will refund about $10 million after selling unsuitable consumer credit insurance to tens of thousands of Australians.
CBA sold 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”, according to ASIC, the financial services regulator.
The bank will also refund about $586,000 in premiums to about 10,000 home loan customers.
ASIC said CBA over-insured these customers for mortgage consumer credit insurance, resulting in the over-charging of premiums.
Regulator condemns CBA
Consumer credit insurance (CCI) is a type of add-on insurance that is 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.
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.”
Problem began in 2007
ASIC said that CBA would remediate customers who were sold CreditCard Plus between 2011 and 2015 and who were either unemployed or students at the time.
These customers were not eligible to claim for unemployment or temporary and permanent disability cover provided by CreditCard Plus.
Between 2007 and 2015, CBA also mis-sold its home loan consumer credit insurance product, according to ASIC.
Some customers who borrowed less than they’d originally applied for were charged premiums based on the higher application figure rather than the lower borrowing amount.
In some cases, cover was also provided and paid for before a loan was drawn down.
CBA and its insurance business, CommInsure, identified and reported these problems to ASIC.
ASIC has previously taken action against Westpac for similar conduct. The regulator said it would also review the past consumer credit insurance sales practices of other banks.