The proceedings were commenced in September 2018 against NAB and MLC Ltd in the Federal Court of Australia and related to the sale of two consumer credit insurance (CCI) products: NAB Credit Card Cover (NCCC) and NAB Personal Loan Cover (PLC).
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.
The class action relates to the alleged mis-selling of personal loan and credit card insurance to NAB and MLC customers, 400,000 of whom were contacted by the Federal Court earlier this year to advise them that they may be eligible to join the class action.
Slater and Gordon had claimed that the insurance was “of little or no value” to customers who would “never have been eligible to claim against”.
The major bank has now revealed that it has agreed on nearly $50 million to settle the case, subject to approval by the Federal Court of Australia.
NAB’s chief legal and commercial counsel, Sharon Cook, said the settlement was “the right thing to do” for customers and shareholders.
“As we have said, we can only move forward if we deal with the past, so that we can earn trust among customers and the broader community and grow confidence in the future of NAB.
“It is important to note NAB no longer sells CCI products through any of its banking channels, and has implemented a remediation program for CCI customers,” she said.
If approved by the court, the settlement could see tens of thousands of Australians compensated, according to Slater and Gordon, who would manage and determine the settlement payments to any individual class members.
Slater and Gordon’s practice group leader, Andrew Paull, commented: “Slater and Gordon is extremely proud to have settled the first consumer class action arising out of the banking royal commission.”
“A $49.5 million settlement is a terrific result for the tens of thousands of people who fall within the class.”
Mr Paull urged any NAB customers that think they may have been paying for NAB Credit Card Cover or NAB Personal Loan Cover to register their details on the Slater and Gordon website.
The payment amount has already been provided for in NAB’s September 2019 full-year financial statements.
CCI in focus
Earlier this year, ASIC released a new report on CCI, warning that the design and sale of consumer credit insurance has “consistently failed consumers”.
The financial services regulator therefore announced enforcement action against several lenders, called for customer remediation, and warned CCI vendors to adhere to new rules or cease selling it altogether.
ASIC’s report warned that CCI products are typically of “very low value” and have been sold and promoted in an “unfair manner”.
CCI sold with credit cards was found to consistently be the poorest value for money for consumers compared with other CCI products.
Overall, the ASIC report found that:
- Consumers were sold CCI despite the fact they were ineligible to claim under their policy.
- Consumers were incorrectly charged for CCI, including being charged ongoing CCI premiums even though they no longer had a loan.
- Telephone sales staff used high-pressure selling and other unfair sales practices when selling CCI.
- Consumers were given non-compliant personal advice to buy unsuitable policies.
- CCI is “extremely poor value for money”, with consumers receiving only 11 cents in claims for every dollar paid in premiums.
- Across all CCI products sold by lenders, only 19 cents was recovered in claims for every premium dollar that consumers paid.
- Several lenders did not have consumer-focused processes to help consumers in hardship make a claim under their CCI policy.
Given the serious findings, ASIC has commenced enforcement investigations into a number of entities that have been involved in mis-selling CCI to consumers. The defendants to ASIC’s future action will reportedly be publicly identified at the time proceedings commence.
It is also requiring lenders to remediate over 300,000 affected consumers with over $100 million to ensure that consumers who have not been treated fairly are appropriately remediated.
To date, more than $51 million has been paid to over 186,000 consumers.
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.