According to ASIC, the big four bank charged customers for loan protection insurance where the customer "did not have a loan on foot and where the customer did not intend to be covered for that period".
Customers affected include those who took out a Mortgage Secure (MS) or Home Loan Protection (HLP) insurance policy when they applied for a home loan. These products were sold as consumer credit insurance (CCI) since 2002 and 2007 respectively, and were designed to provide a benefit in the event that the customer was not able to repay their home loan due to certain events occurring, such as sickness or death.
An ASIC investigation uncovered that Westpac may have been collecting premiums from some customers for a CCI policy over a period when the customer did not have a home loan.
In particular, ASIC was concerned that Westpac had been collecting premiums for these products before a home loan was drawn down, after a home loan was repaid, or where a customer did not go ahead with a home loan.
“It is important that a product is sold in a way that is consistent with what it is designed to do, in order to ensure that customers don’t pay for something they don’t need,” ASIC deputy chair Peter Kell said.
“In this case, Westpac customers may have been paying for insurance cover they did not need, either because it covered risks that were not present or risks against which they were already insured,” Mr Kell added.
ASIC acknowledged the cooperative approach taken by Westpac in responding to its concerns.
Westpac will write to customers from late October.
MS was sold by Westpac Banking Corporation. HLP was sold by St George, Bank of Melbourne and BankSA, all of which are divisions of Westpac Banking Corporation.
ASIC noted that customers of RAMS Financial Group Pty Limited, which is part of the Westpac Group, may also have been sold HLP.
Westpac stopped offering the MS and HLP products to new customers in June.
Westpac yesterday responded to ASIC's announcement and provided clarity around its mortgage protection products.
"Mortgage Secure and Home Loan Protection insurance are policies designed to provide a benefit in the event that the insured suffered an event such as death or sickness," a Westpac spokesperson said.
"We are pleased that ASIC is now comfortable with our approach to communicating with customers to ensure that those who hold these policies understand how their insurance works and what they are covered for."
The spokesperson added: "It is worthy of note that if a customer did not have a home loan during the time they were paying premiums, they remained covered and were entitled to make a claim during this period.
"In considering a refund, affected customers should also take into account their personal circumstances, including whether comparable replacement cover is available to meet their needs."