The Australian Securities and Investments Commission (ASIC) has announced that the Commonwealth Bank of Australia (CBA) will refund approximately $10 million to customers that were mis-sold consumer credit insurance (CCI).
CCI is a type of add-on insurance, 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.
According to ASIC, CBA will be refunding approximately 65,000 customers who were sold CreditCard Plus insurance for credit card repayments despite being “unlikely to meet the employment criteria and would be unable to claim the insurance”.
The action is being taken after it was found that, between 2011 and 2015, many customers were sold the insurance despite being unemployed or students, and therefore ineligible to claim for unemployment or temporary and permanent disability cover.
The vast majority of customers were students with lower credit card limits.
CBA is also refunding approximately $586,000 in premiums to around 10,000 customers after it over-insured these customers for Home Loan Protection CCI taken out with a Commonwealth Bank home loan, resulting in the overcharging of premiums.
According to the regulator, between 2007 and 2015, the bank failed to adjust the amount of cover under the CCI policy where the amount the customer borrowed was less than the original loan amount they applied for.
In charging these customers premiums based on the loan amount applied for (rather than the amount that was actually borrowed), CBA charged these customers for more cover than they needed under the policy.
In some cases, cover was also provided and paid for before a loan was drawn down.
The bank and CommInsure identified and reported this issue to ASIC and will reportedly continue its review to “ensure all affected customers are identified and remediated”.
ASIC deputy chair Peter Kell said that it was “unacceptable” that customers were sold insurance that did not meet their needs.
He commented: “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."
The announcement comes after ASIC revealed that it was working with the banking industry to overhaul how they offer CCI to customers, and follows on a string of headlines that have painted the bank in an unflattering light in recent weeks.
[Related: Banks initiate CCI overhaul following ASIC audit ]