DISCREDITED insurance on personal loans and credit cards, no longer sold by major banks, is back in the spotlight as Bendigo consumers claw back thousands of dollars owed to them.
The Australian Securities and Investments Commission (ASIC) denounced consumer credit insurance (CCI) as "junk insurance" and ordered 11 major banks and lenders to refund $160 million to 434,000 consumers in 2020.
Ongoing remediation by the sector had collectively exceeded $250 million in April last year.
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Bendigo residents are among those recouping years of fees paid as insurance premiums for coverage, which promised to cover debt repayments if they lost their jobs or died before paying off the loans.
ASIC deputy chairwoman Karen Chester said however, that $105.8 million of insurance coverage was sold to consumers who were ineligible to claim or unlikely to ever need the cover.
"It's both unfair to consumers and ultimately costly to business to sell junk insurance," she said.
"There is nothing fair about selling on-going consumer credit insurance to a 65-year-old when eligibility falls away at 66. There is nothing fair about selling insurance with involuntary unemployment cover to an unemployed worker. These sales practices were systemic."
Insurance refund specialist company Claimo's chief executive officer Nathan Mortlock said more than 100 customers from Greater Bendigo had received payments.
The total value of those claims reached more than $100,000 but Mr Mortlock estimated it was a drop in the ocean compared to the true figure owed by banks and lenders.
"Shockingly one in three Victorians have policies that are often worth less than the paper they're printed on," he said.
"Most victims don't know they have junk insurance or could be owed a refund."
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ASIC found that, apart from selling policies to people who were ineligible to claim the insurance, lenders had also used pressure selling and other unfair sales tactics, such as making false representations.
Mr Mortlock said instances of unfair selling were rife among customers seeking refunds.
"We were able to get a refund for a customer in Bendigo who had paid $12,619 for CCI," he said.
"He was an older gentleman and he'd taken a home loan for $200,000 in about 2014 - he had equity from other properties he'd had. They (the lender) used fear tactics and told him his family would be left with the debt if he died and he was very worried about that so he agreed to buy the CCI."
ASIC said that since the release of its report in 2019, all of the lenders in its review - including Commonwealth Bank, the NAB, Westpac, ANZ and Bendigo Bank, had abandoned the sale of CCI on credit cards, personal loans and home loans.
However, Mr Mortlock said many people - who were sold the insurance before 2019 - would still be paying the premiums and have active accounts.
"It is up to the individual to apply for a refund. You won't be getting a call from your bank to offer to give it back," he said.
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