Screaming, dressed in glistening armour and wielding an axe, Aaron Flores has defended the honour of Australia on the battlefield.
But the loan he took to get to the world championships of Historical Medieval Battle saw him besieged by banditry, in the form of consumer credit insurance, or CCI.
“It is disappointing,” the Brisbane train driver lamented.
“You put trust and faith in anyone and find out that maybe there’s a little bit of dishonesty, you know, not-honourable intentions behind the scenes … just to make a few extra bucks.”
The CCI sold to customers like Mr Flores has historically been tacked onto millions of credit card, personal and home loan contracts.
The Australian Securities and Investments Commission (ASIC) is taking Westpac to court over the issue, and other major banks face class actions on behalf of millions of customers.
“CCI is junk,” said Katherine Temple, director of policy and campaigns at the Consumer Action Law Centre.
“This has been a rort that everyone’s been in on for years.
“It should have never been sold and it shouldn’t be sold anymore.”
Tiny fee adds up
Regulator ASIC released its first report warning the industry about the low-value products in 2011. Its criticisms included:
- Consumers being sold CCI “without their knowledge or consent”.
- “Pressure tactics and harassment” used to induce CCI purchases.
- “Misleading representations being made during … sale”.
Those criticisms have not changed.
‘Extremely poor value’ insurance
Australians are getting “extremely poor value” on their consumer credit insurance, with an average return of as little as 11 cents in the dollar, according to ASIC’s scathing report on the industry.
“It’s known as junk insurance because for any normal person it’s incredibly low value,” explained Andrew Paull, practice group leader at law firm Slater and Gordon.
The policies are meant to protect consumers for things such as being unable to make payments.
But for every dollar paid in premium, less than 10 cents are paid out in claims. Compare that to car insurance, which pays out almost 89 cents for every dollar paid in premiums.
Mr Paull is leading class actions against the Commonwealth Bank, ANZ and Westpac. (NAB settled its action in 2019 for $49.5 million. Almost 50,000 customers received compensation.)
“We’re talking perhaps one in four Australian households that are being sold a complex and worthless financial product by one of the trusted big four banks,” he said.
Low payouts made CCI extremely profitable for banks. But another issue made it even worse for consumers: many were ineligible to claim on the benefits.
Rampant mis-selling meant products such as income protection insurance were sold to people such as students and pensioners who were not working and therefore unable to claim on it.
Court action
Regulator ASIC has helped get $160 million back to customers. Class actions are ongoing and the Consumer Action Law Centre has a tool called “Demand a Refund” that has helped return $30 million of CCI payments.
Now ASIC has commenced civil penalty proceedings against Westpac, alleging it mis-sold CCI with credit cards to almost 400 customers who had not agreed to buy the policies.
ASIC is seeking declarations and pecuniary penalties – a fine as punishment – from the Federal Court, where it has lodged the action.
Court documents filed by ASIC allege Westpac sold the insurance without consent.
“Because in each case the supply of the insurance policies was unsolicited, the customers were not liable to pay premiums, but Westpac nonetheless debited the amount of the premiums to the customers’ credit accounts,” ASIC argued.
In a statement, Westpac said it was “carefully considering these claims and is committed to working constructively with ASIC through the court process”.
It could be just the start.
In the United Kingdom, payment protection insurance, or PPI, has been a long-running nightmare for institutions.
The scandal is now the biggest consumer redress scheme in UK history, and banks have paid back the equivalent of $68 billion.
Royal commission cameo
The UK experience led to one of the key moments in Australia’s banking royal commission.
In 2016, the then-chief executive of the Royal Bank of Scotland, Ross McEwan, emailed his former Commonwealth Bank colleague Matt Comyn, warning about the dangers of the products.
Mr McEwan is now chief executive of NAB, and Mr Comyn is the chief executive of our largest bank.
But back then he was a senior CBA executive. Emboldened by the information, he took a plan to then-CEO Ian Narev to kill off junk insurance, then bringing in $150 million annually.
Mr Narev shot him down, telling him something that Mr Comyn wrote down on his notepad that he was questioned about by senior counsel assisting Rowena Orr QC:
ORR: “‘Temper your sense of justice.’ What does that mean?”
COMYN: “That’s what Mr Narev said to me.”
ORR: “And what did you understand him to be conveying to you when he said to you, ‘Temper your sense of justice.'”
COMYN: “Calm down.”
While some bank customers have spent up to $15,000 on CCI, for most the amounts are not huge.
Mr Flores has likely lost several hundred dollars. But the experience has broken the trust he held with Westpac, where he has been a long-time customer.
“To know that it’s been looked at for 10 years and they’ve been warned not to do it and to hear all this other stuff … it’s it is very difficult to wrap your head around it,” he said.
“There are other things I want to do in life and I’m always going to have a little bit of a uncertainly in the back of my mind now if I ever have to approach them for anything again.”
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