Westpac faces lawsuit over 'misleading' insurance sales

Westpac is being taken to court by the Australian Securities and Investments Commission over mis-sold credit card insurance. The regulator is alleging the country’s second-largest lender sold consumer credit insurance to customers who had not agreed to buy it. 

ASIC claimed that the breaches occurred over a four months period from 7 April 2015 to 18 July 2015 related to the sale of consumer credit insurance products to 384 customers.

In a nutshell, consumer credit insurance (CCI) covers you if something happens to you that affects your ability to meet your credit repayment (in the event of death, permanent disability or loss of income due to injury, illness or involuntary unemployment.)

From what we’ve already heard from ASIC, Westpac made false and misleading statements to customers by telling them they had agreed to sign up to the products and pay for them. The bank is alleged to fail to act honestly and fairly in selling these products. 

ASIC added that it’s seeking declarations and pecuniary penalties from the Federal Court. 

This lawsuit is prompted as part of ASIC’s priority to address consumer harms stemming from the design and sale of consumer credit insurance (CCI). 

In 2019, the corporate regulator published a report which labelled CCI as “extremely poor value for money” saying the product was unfairly promoted and sold to bank customers. Customers were only receiving 11 cents for every dollar they spent on CCI premiums linked with their credit cards. The ASIC report also found insurers paid just $200 million in claims on $1.78 billion of premiums earned between 2011 and 2018.

It has so far clawed back $250 million in remediation from 11 major banks and lenders for 580,000 consumers that were subjected to the sales practises of the banks. That is an average of $430 for each customer. 

"Lots of people already had cover for (the CCI insurance coverage) through their superannuation. It was sold to people who never even needed it.”

“And these policies are still being flogged to people." – said The Consumer Action Law Centre's senior policy officer Cat Newton.

In response, the bank said it had not sold consumer credit insurance since 2019.

In a statement, Westpac said it’s “carefully considering these claims and is committed to working constructively with ASIC through the court process.”

What’s clear is that major banks have stopped selling this type of insurance after it came under scrutiny alongside other products.