Slater and Gordon has filed a class action against Commonwealth Bank, alleging that the bank sold consumer credit insurance for credit cards and personal loans that it knew were worthless.
The claim relates to cover sold between January 2010 and March 2018.
The proceedings in the Federal Court have also been brought against Colonial Mutual Life Assurance Society Ltd.
Slater and Gordon said in a statement that CBA admitted to the Hayne royal commission that the policies were “junk insurance”. However, existing policies “have been rolled over and many customers are continuing to be charged thousands of dollars in fees for worthless products to this day”.
Slater and Gordon practice group leader Andrew Paull said: “A 2018 review of the bank’s sale of consumer credit products revealed that more than 200,000 people who were unemployed or not working full time had been sold this type of policy, meaning it was very unlikely they would have been able to claim against the insurance.”
Paull said the bank has compensated only a small number of customers who bought worthless policies.
Last month, NAB and MLC settled a class action claim over consumer credit insurance, agreeing to pay $49.5 million.
The claim, also brought by Slater and Gordon, alleged that NAB and MLC engaged in unconscionable conduct by selling the insurance to people who were not eligible to claim under the terms of the cover or were highly unlikely to benefit from the policy.
Allianz, Suncorp, Swann Insurance and QBE have all paid compensation to customers who bought various types of “add-on” insurance.
ASIC has reported on the failings of consumer credit and other add-on insurance for a number of years. In a 2018 report, it highlighted the following issues:
• it was unlikely that customers would be able to claim on asset protection policies because the insured value of the car was more than the car loan (where the customer paid a large deposit);
• customers did not receive rebates when they paid out their loan early (which meant that their cover under the policy had stopped);
• customers were over-insured because they were sold a higher and more expensive level of cover than needed;
• customers were sold a product they were ineligible to claim on;
• life cover was sold to young people who were unlikely to need it;
• cover was unnecessary as it duplicated existing cover held by customers, including under their comprehensive insurance policies; and
• customers were sold cover for longer periods than they needed, for example, because the car was close to the kilometer limit at which cover would expire.
ASIC found that across all add-on insurance products it reviewed over three years, the gross amount returned to consumers in claims was only nine cents for every dollar of premium paid. By comparison, home insurance returns around 55 cents in the dollar.
Last year the regulator warned that unless consumer credit products were redesigned to provide better outcomes for consumers, it would use its product intervention power.