Major bank pleads guilty for mis-selling credit insurance

The 30 criminal offences relate to CBA’s supply of CreditCard Plus and Loan Protection policies as an add-on insurance product sold in branches, by telephone, and online.

Between 2011 and 2015, the major bank made false or misleading representations to customers that they could make a claim against their insurance policies when some or all of these claims were not available to them.

Between October 2011 and July 2015 (period of offending), the maximum penalty for these offences increased from $1,100,000 to $1,700,000 per offence (CBA refunded more than $10 million to 65,000 consumers in 2017 after selling them “unsuitable” insurance on home loans and credit cards).

The matter was prosecuted by the Commonwealth Director of Public Prosecutions after an investigation and referral by the Australian Securities and Investments Commission (ASIC).

The matter has been adjourned to a date yet to be set.

CBA’s conduct was the subject of a case study by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

Background

On 16 September, ASIC announced that had filed 30 criminal charges against the CBA in the Federal Court relating to CBA’s promotion and sale of CreditCard Plus and Loan Protection policies as add-on insurance product in branches, by telephone, and online.

The alleged behaviour focused on whether the bank did not adequately disclose to those customers at the point of sale that they were not eligible for certain benefits under the consumer credit insurance policies because of their employment status.

If found guilty, this would contravene the ASIC Act.

The major bank recently apologised to customers affected by the “unacceptable” conduct in former consumer credit insurance sales after acknowledging that criminal proceedings had been filed by ASIC in relation to the sale of the products (these products are no longer offered by the bank).

Last year, Slater and Gordon filed a class action in the Federal Court against CBA and its insurer, Colonial Mutual Life Assurance Society Ltd in relation to allegations that the major bank sold its customers “junk” credit card and personal loan insurance.

The action forms a part of the ASIC’s priority to tackle consumer harms in insurance, and follows its detailed review of the sale of consumer credit insurance by 11 major brands and other lenders.

Report 622, Consumer credit insurance: Poor value products and harmful sales practices, published in July 2019, revealed that the design and sale of consumer credit insurance had consistently failed consumers.

ASIC found that this insurance was poor value, its sales practices and product design caused consumer harm and consumers were being incorrectly charged.

ASIC’s Report 256, Consumer credit insurance: A review of sales practices by authorised deposit-taking institutions, published in October 2011, made 10 recommendations to reduce the risk of consumer credit insurance being mis-sold to consumers.

Other lenders subject to proceedings

This is the second criminal prosecution under consumer protection provision s12DB of the ASIC Act (alleging false and misleading representations) against a bank after ASIC filed charges against ME Bank in May 2021.

The bank has also faced separate charges for alleged contraventions relating to letters issued to home loan customers between September 2016 and September 2018.

Another major bank was also subject to court proceedings for their practices around consumer credit insurance products. In April 2021, ASIC filed separate civil penalty proceedings against Westpac Banking Corporation for its selling practices regarding consumer credit insurance products.

ASIC revealed last year that over $160 million in remediation was due to be paid out to customers who have been sold “junk” consumer credit insurance from 11 different banks and lenders.

Many lenders have now ceased offering consumer credit insurance products with credit cards, personal loans, or home loans, while cold-calling for CCI has also been banned.

On 5 October, a new deferred sales model for add-on insurance (including consumer credit insurance) came into effect (among a slew of other regulatory regimes).

The new regime requires a clear four-day pause between when a customer enters a commitment to acquire a principal product or service, and when they are offered or sold an add-on insurance product.

In July, Federal Treasurer Josh Frydenberg confirmed that home building insurance and home and contents insurance will be exempt from the deferred sales model.

[Related: Major bank apologises for ‘unacceptable’ CCI conduct]