In December 2016, the Australian Securities & Investments Commission (ASIC) undertook audits of ANZ, Bank of Queensland, Citibank, Commonwealth Bank, HSBC, NAB, Suncorp and Westpac to ascertain whether their staff had been compelled to act illegally and issue CCI products without customer knowledge or consent due to overly aggressive sales targets.
These audits, focusing on activities between 2014 and 2016, assessed processes relating to the three most common consumer banking products: basic deposit products, consumer credit insurance and credit cards.
However, CCI is often also sold with home loans, personal loans and car loans.
The ASIC audits specifically examined the following: the account and product on-boarding processes, with a focus on customer acknowledgment and account activation controls; whether there were processes in place to “proactively detect potential misconduct arising from sales incentives”; complaints where customers claimed they had not applied for an account or product; internal reporting processes; and processes and protections for organisational whistleblower programs.
According to ASIC deputy chair Peter Kell, the audits were “all about ensuring that banks were not—intentionally or inadvertently—encouraging illegal sales practices by staff and that the banks have processes in place to identify unlawful selling of retail banking products”.
While the audits did not find any systemic misconduct (and that, overall, controls were in place to prevent and identify misconduct), it was found that CCI was “a standout product for customer complaints and at heightened risk for sale without proper informed customer consent”.
The audits also uncovered possible “weaknesses” in activation controls and opening of accounts, record keeping and change of address processes in relation to CCI.
As such, ASIC has now announced that it will be working with the banking industry and consumer advocates to improve sales practices in relation to CCI, including the introduction of a deferred sales model for CCI sold with credit cards over the phone and in branches.
The Consumer Credit Insurance (CCI) Working Group will look at deferring the offer of CCI on credit cards for at least four days after a customer has applied for one over the phone or in branch.
According to ASIC, this “reduces the risk that a consumer will feel pressured to purchase the CCI product, or purchases a CCI product that does not meet their needs”.
The Australian Bankers' Association (ABA) will also reportedly incorporate these measures into the revised Code of Banking Practice and will accelerate their introduction so that they commence in the first half of 2018 (before the new code is fully in place).
However, the deferred sales model will not apply to CCI sold online or with home loans and personal loans.
Instead, the working group will work on “other measures” to promote good consumer outcomes in these areas.
ASIC has said that these measures will be monitored to determine whether further reforms would be required.
Mr Kell commented: “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.”
[Related: Banks commit to responsible lending reform]