ASIC announces changes to consumer credit insurance
Banks can no longer offer you consumer credit insurance when you apply over the phone.
If you’ve ever applied for a credit card over the phone or in a branch, you may recall being offered consumer credit insurance if your application was approved. Well, this sales tactic could soon become a thing of the past with the launch of the Consumer Credit Insurance (CCI) Working Group last week.
CCI is a type of add-on insurance sold with credit cards, personal loans, home loans and car loans. The insurance is supposed to provide cardholders with financial security if they struggle to meet repayments if they lose their job, become sick or injured or die. However, many CCI policies have come under fire from ASIC following unethical outcomes for consumers.
Some of these instances have included customers being unaware that they purchased CCI or realising they were ineligible to make a claim on their CCI policy. Compared to other insurance products, such as car and home insurance, ASIC has also confirmed that consumers can receive very little back in claims compared to what they pay in CCI premiums.
In response, the CCI Working Group has announced a series of reforms to help improve the outcomes of consumer credit insurance in Australia. As new cardholders could be persuaded to sign up for CCI when they first apply their credit card without realising, banks can no longer sell CCI policies until at least four days after the applicant has applied over the phone or branch. ASIC hopes this will reduce the risk that a consumer will feel pressured to purchase the CCI product even if it doesn’t meet their needs.
To ensure that customers aren’t being signed up for CCI without giving full disclosure first, banks have committed to strengthening their processes for obtaining express consent from customers who purchase CCI. In addition, they’ll also provide improved and more thorough disclosure about the cost and duration of the policy.
“Consumers should be confident that when they sign up for consumer credit insurance, they know what it is and that it suits their needs,” said ASIC deputy chair Peter Kell.
ASIC has vowed to monitor the effectiveness of the changes and will introduce further reforms where required, including new metrics to indicate the value consumers are receiving from CCI products. The Australian Bankers’ Association (ABA) will also include these measures in the revised Code of Banking Practice and will accelerate their introduction so that they can commence in the first half of 2018.
So, if you apply for a credit card or loan and find you're being bombarded with offers for consumer credit insurance while you're on the phone or in the branch, it might be time to give ASIC a quick call.