Earlier this year, the Australian Securities and Investments Commission (ASIC) warned that the design and sale of consumer credit insurance (CCI) had “consistently failed consumers”.
It has also commenced enforcement action against several lenders, called for customer remediation, and warned CCI vendors to adhere to new rules or cease selling it altogether.
CCI – usually sold by lenders to borrowers when taking out a mortgage, personal loan or credit card – provides cover for consumers if they are unable to meet their minimum loan repayments due to unemployment, sickness or injury or to pay the outstanding loan balance upon death.
Following this review, ASIC has now announced that it will ban unsolicited “cold call” telephone sales of direct life insurance and CCI from 13 January 2020.
The legal instrument, ASIC Corporations (Hawking–Life Risk Insurance and Consumer Credit Insurance) Instrument 2019/839, uses ASIC’s modification power in the Corporations Act 2001 to prohibit the offering of life insurance products and CCI products in the course of, or because of, an unsolicited telephone call, unless the person has been provided with personal advice.
The instrument is made under the modification power in section 992B(1)(c) of the Corporations Act.
Specifically, it modifies section 992A(3) of the act to prohibit the unsolicited telephone sales of direct life insurance and CCI products if the offerer has not provided the person with personal advice.
Prior to this ban, firms could engage in unsolicited telephone calls if certain requirements were met – for example, calling the consumer during prescribed hours and giving them the option of having information from the product disclosure statement read out prior to making an offer.
Speaking of the upcoming ban, ASIC commissioner Sean Hughes commented: “ASIC will intervene to stop practices that lead to poor consumer outcomes and destroy trust in the financial system.
“This action draws a clear line in the sand. From January, firms will no longer be able to call consumers out of the blue and use sophisticated sales tactics to pressure people into buying life insurance and CCI products.”
The ban complements enforcement action ASIC has undertaken for past poor sales conduct by insurers.
For example, last week, CommInsure was fined $700,000 after pleading guilty to unlawful unsolicited telephone sales of life insurance.
ASIC has also commenced civil penalty proceedings against Select AFSL Pty Ltd relating to telephone sales of life and accidental injury insurance.
The regulator has also updated its guidance in Regulatory Guide 38, The hawking provisions, to reflect the ban.
The ban comes following several high-profile class actions against lenders in regards to their CCI offerings.
Last month, law firm Slater and Gordon launched two new class actions against ANZ and Westpac for the alleged mis-selling of consumer credit insurance products to potentially hundreds of thousands of customers.
The class action came just days after the firm reached a settlement with NAB for $49.5 million, also relating to the sale of CCI products.
[Related: NAB agrees to pay $49.5m in CCI settlement]
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Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.