Banks in gun over shonky card policies

BANKS will face class actions from more than 100,000 customers who have $40 millionplus for “worthless” credit-card insurance.

Law firm Slater and Gordon is investigating filing proceedings against each of the Big Four over credit-card insurance meant to cover repayments if a borrower becomes sick, injured or unemployed.

However, the firm said often CCI had been sold to people who didn’t have a job, already had an income protection policy, were over a maximum age or ineligible because they worked for themselves.

The practice inflated already-high CCI profitability, the firm said.

For every $4 banks take in premiums only $1 is paid out in claims, where for other types of insurance about $3 is returned to policyholders.

The Australian Securities and Investments Com0mission has already ordered Commonwealth Bank to refund $10 million of CCI premiums paid by 65,000 customers — all students or unemployed.

Ibisworld data shows CBA has a quarter of the credit card market, meaning the class action under consideration could amount to a claim for $40-$50 million, Slater and Gordon senior associate Andrew Paull said.

More than 100,000 people could be eligible to join, he said. Not only had CCI been sold to people who could never make a claim, Mr Paull said, many customers had not specifically agreed to buy it.

“We have found substantial evidence to suggest a large number of Australian creditcard holders are paying hundreds, if not thousands, of dollars a year for worthless insurance,” Mr Paull said.

These practices could amount to unconscionable conduct in breach of the ASIC Act.

Mr Paull said the firm would not simultaneously go after CBA, Westpac, NAB and ANZ. Instead, it would pick a single institution to target first — the one “most egregiously involved in these problems”.

CBA last week said it would stop selling CCI altogether, seeking to neutralise a potential issue at the Financial Services Royal Commission, which begins hearings Tuesday.

While other banks were quick to follow CBA’s lead in dumping ATM fees last September, no other institution has indicated it will get out of CCI.