A controversial practice where consumers are sold “junk insurance” when they go to take out a home loan, credit card, or even buy a plane ticket, will be scrutinised in court, following action by the corporate regulator against Westpac.
Key points:

  • ASIC is suing Westpac over its sale of consumer credit insurance in 2015 to almost 400 customers
  • The practice saw consumers sold insurance on the potential of default at the time when they signed up to credit cards
  • Other industries, including travel, still conduct a form of this sales practice 

ASIC is suing the major bank over its sale of consumer credit insurance (CCI) to consumers, allegedly without their consent.
This sort of insurance typically provides cover for consumers if they are unable to meet their minimum loan repayments due to unemployment, sickness or injury.
It is usually optional and sold by lenders to consumers with a credit card, personal loan or home loan.
ASIC released a report in 2019 that slammed CCI and found it was giving consumers “extremely poor value for money”. That followed sweeping recommendations in the banking royal commission about regulating this form of insurance.
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ASIC alleges that Westpac mis-sold CCI with credit cards and other credit lines to almost 400 customers “who had not agreed to buy the policies” for several months back in 2015.
ASIC is seeking declarations and pecuniary penalties from the Federal Court where it has lodged the action.
Court documents filed by ASIC allege Westpac sold the insurance without consent.
“It supplied certain insurance to credit customers which they had not requested and had not agreed to acquire,” it said. 
“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.”
In a statement, Westpac said it was “carefully considering these claims and is committed to working constructively with ASIC through the court process”.
“Westpac has not sold CCI products since 2019.”
The Commonwealth Bank was also rebuked in 2018 at the banking royal commission over its sale of CCI to “tens of thousands of consumers”,  including students, pensioners and people without jobs, most of whom would not be eligible for any benefits from the insurance.
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Westpac’s decision to stop selling the controversial insurance in 2019 came as ASIC investigated the sale of CCI by Australia’s 11 biggest banks and lenders.
ASIC’s report released in 2019 found customers were only receiving 11 cents for every dollar they spent on CCI premiums linked with their credit cards.
Across all CCI products including mortgages and personal loans it found customers were still only getting back 19 cents for every dollar on the premiums they pay.
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The Consumer Action Law Centre’s senior policy officer Cat Newton told ABC News the practice of selling people insurance that they did not need had been “widespread” and targeted consumers at the vulnerable “pressure dynamic” point of sale.
“The salesperson effectively adds on junk,” she said.
“You’re there and focused on the primary thing you’re there to buy. There are these subtle pressures to finish the deal.
“In some cases, banks and car dealers suggest or help lead you to the ultimate insurance product,.
“People don’t even know they’re getting the dud insurance.
“Lots of people already had cover for (the CCI insurance coverage) through their superannuation. It was sold to people who never even needed it.
The problems with junk insurance were industry wide. It was a rort and everyone was in on it.
And these policies are still being flogged to people.”
Who is still selling ‘junk’ insurance?
As well as its court action against Westpac, ASIC has also been working to get money back from major banks and lenders for consumers stung by CCI.
It has so far clawed back $250 million in remediation from 11 major banks and lenders for 580,000 consumers. That is an average of $430 for each customer.
The Australian Banking Association also brought in a code of practice for the industry’s use of CCI back in 2017.
The code says that banks should give consumers a four-day cooling off period after they sign up for a credit card or loan before spruiking them the additional insurance for it.
The ABA told ABC News that while some banks, like Westpac, no longer offer CCI at all, others still do.
The CALC’s Cat Newton said the practice of selling people insurance they may not need at the point of sale is still common in the travel sector and secondhand car industry.
Insurance offered to a consumer when they go to buy a plane ticket on a popular flights website.(ABC News
Consumers will most commonly know this as the travel insurance on a holiday or flight that is offered to them when they buy plane tickets online or even with a travel agent.
“You’re not there to buy insurance. You’re there to buy a plane ticket,” Ms Newton said.
The Federal Government has already signed off on industry wide reform that will see the four-day cooling off period enshrined in law.
That regulation is set to come into effect in October.
However, the Federal Government has been consulting on giving certain industries an exemption on the cooling off period, and had flagged that it intended to do this for travel insurance products and compulsory third party (CTP) cover for motor vehicles.
Treasury confirmed to ABC News on Thursday that it will exempt travel insurance products from the deferred sales mechanism.
Ms Newton said that means travellers will still be vulnerable to buying insurance they may not need, even with regulation.
“It will mean that travel agents and airlines will still be able to tack on the sales of travel insurance to the end of buying a flight or buying a holiday, and it won’t give people that pause to consider if it’s the right insurance for them.”