Consumer credit insurance confusion spurs ASIC overhaul

Consumer credit insurance confusion spurs ASIC overhaul

The Australian Securities & Investments Commission (ASIC) has commenced work with representatives from the banking industry on reforming Consumer Credit Insurance (CCI) in Australia.

This type of add-on insurance, often sold with credit cards, personal loans, home loans and car loans, is intended to help borrowers meet their repayments if they lose their job, become sick or injured, or die.

But according to ASIC, CCI has long been associated with poor consumer outcomes in Australia and overseas, with many consumers being unaware that they have purchased CCI, or discovering they are ineligible to make a claim on their CCI policy. When compared to other common insurance products, such as car and home insurance, consumers may receive relatively little back in claims compared to what they pay in CCI premiums.

Following prior ASIC audits of eight Australian banks, as well as ASIC’s work in relation to add-on insurance products (including CCI) sold through car dealerships, the CCI Working Group was established, including representatives from ASIC, the ABA, banks and consumer advocacy groups. The Group met for the first time on 27 July 2017, with a goal to progress a range of reforms, including a deferred-sales model for CCI sold with credit cards over the phone and in branches.

Under this deferred-sales model, consumers cannot be sold a CCI policy for their credit card until at least four days after they have applied for their credit card over the phone or in a branch, reducing the risk that a consumer will feel pressured to purchase a CCI product that does not meet their needs.

The CCI Working Group has also seen banks commit to strengthening their processes for obtaining express consent from customers who purchase CCI, and providing improved disclosure about the cost and duration of these policies. The Australian Bankers’ Association (ABA) is set to incorporate these measures into its revised Code of Banking Practice and accelerate their introduction so they commence in the first half of 2018, well before the new code is fully in place.

According to ASIC deputy chair, Peter Kell:

“Consumers should be confident that when they sign up for consumer credit insurance, they know what it is and that it suits their needs.”

“We welcome industry’s commitment to improve their sales practices and look forward to working with industry and consumer advocates on these initiatives.”

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Will comprehensive credit reporting change my credit score?

Comprehensive credit reporting may change your credit score, either positively or negatively, depending on an individual's situation.

Under comprehensive credit reporting, credit providers will share more information, both positive and negative, about how you and other Australians manage credit products. That means credit reporting bureaus will be able to make a more thorough assessment of everyone’s credit behaviour. That will lead to higher scores for some consumers and lower scores for others.

What causes bad credit ratings/scores?

Failing to repay loans and bills will damage your credit score. So will falling behind on your repayments. Your credit score will also suffer if you apply for credit too often or have credit applications rejected.

How can I improve my credit rating/score?

Your credit score will improve if you demonstrate that you’ve become more credit-worthy. You can do that by minimising loan applications, clearing up defaults and paying bills on time.

Another tip is to get the one free credit report you’re entitled to each year – that way, you’ll be able to identify and fix any errors.

If you want to fix an error, the first thing you should do is speak with the credit reporting body, which may take care of the problem or contact credit providers on your behalf.

The next step would be to contact your credit provider. If that doesn’t work, you can refer the matter to the credit provider’s independent dispute resolution scheme, which would be the Australian Financial Complaints Authority (AFCA).

AFCA provides consumers and small businesses with fair, free and independent dispute resolution for financial complaints.

If that doesn’t work, your final options are to contact the Privacy Commissioner and then the Office of the Information Commissioner.

How do I know if I've got a bad credit history?

You can find out what your credit history looks like by accessing what's known as your credit rating or credit score. You're also able to check your credit report for free once per year.

Are there emergency loans with no credit checks?

While many personal loans require a credit check as part of the application process, some personal loans and payday loans have no credit checks, which may appeal to some borrowers with a bad credit score.

Keep in mind that even if a loan is available with no credit check, the lender will likely want to confirm that you can afford the repayments on your current income.

Do $4000 loans have no credit checks?

Many medium amount loans for $4000 have no credit checks and are instead assessed based on your current ability to repay the loan, rather than by looking at your credit history. While these loans can appear attractive to bad credit borrowers, it’s important to remember that they often have high fees and can be costlier than other options.

Personal loans for $4000 are more likely to have longer loan terms and will require a credit check as part of the application process. Bad credit borrowers may see their $4000 loan applications declined or have to pay higher interest rates than good credit borrowers.

What is a credit rating/score?

Your credit rating or credit score is a number that summarises how credit-worthy you are based on your credit history.

The lower your score, the more likely you are to be denied a loan or forced to pay a higher interest rate.

Is it hard to improve your credit score?

It can be hard to improve your credit score, as it usually requires sacrifice and discipline, but hard doesn’t necessarily mean complicated. Some simple ways you can give your credit score a boost include closing extra credit cards, reducing your credit card limit, pay off any loans and make loan repayments on time.

As a general rule, the lower your credit score, the more remedies you can apply and the greater the scope for improvement.

Can students with no credit history get loans?

It is possible for students with no available history of borrowing or managing money to get a personal loan, though it may be more difficult as well as expensive than for borrowers with a good credit history.

Having no credit history means having no credit score. While many lenders may consider having no credit score to be better than having a bad credit score, they may still consider it riskier to lend to an unknown borrower and may charge higher interest rates or fees than to borrowers with good credit scores.

How long will I have bad credit?

Most negative events that appear on a person’s credit file will stay in their credit history for up to seven years.

You may be able to improve your credit score by correcting errors in your credit report, clearing outstanding debts, and maintaining good financial habits over time.

What are the pros and cons of bad credit personal loans?

In some instances, bad credit personal loans can help people with bad credit history to consolidate their debts, which can help make it easier for them to clear those debts. This is because the borrower might be able to consolidate several debts with higher interest rates (such as credit card loans) into one single debt with a lower interest rate and potentially fewer fees.

However, this strategy can backfire if the borrower spends the loaned funds instead of using it to repay the new loan. Another disadvantage of bad credit personal loans is that they have higher interest rates than regular personal loans.

What is bad credit?

A person is deemed to have ‘bad credit’ when they have a poor history of managing credit and repaying debts.

When was comprehensive credit reporting introduced?

Comprehensive credit reporting was introduced to make credit reports fairer and more accurate. Under the previous system, credit providers only saw negative information about potential borrowers. Now, they're able to see both positive and negative information, which means that credit providers can see if a borrower’s negative credit behaviour is consistent or a mere one-off.

Who calculates your credit rating/score?

Credit ratings or credit scores are calculated by credit reporting bodies. The main bodies are Equifax, Dun & Bradstreet, Experian and the Tasmanian Collection Service.