Clik here to view.
Banks bundled a CCI policy into small business and investment loans without
anybody knowing? Of course they do!
"Despite finding the same practices in Australia, ASIC took action against Banks. Its
like the regulators are an observer, report to treasury and swept under carpet. They
tinker after the event." Still the same 2016.
Australia’s own PPI scam
April 08, 2015
Marion Williams
http://www.australianbankingfinance.com/insurance/australia-s-own-ppi-scam/
Since January 2011 UK regulators have forced banks to pay £17.3 billion in compensation for mis-selling payment protection insurance. Banks in Australia have done the same thing and got off scot-free. PPI is supposed to protect borrowers and credit card holders for loss of income if they lose their job or can’t work due to an accident or illness. Between 1990 and 2010 banks in the UK sold 45 million PPI policies, or 2.1 million per year, equivalent to 3.4 per cent of the UK’s population.
In Australia banks sell a similar product, consumer credit insurance (CCI). They sell it when customers take out a personal or home loan or apply for a credit card. In the financial year that ended 30 June 2012, 988,000 CCI policies were sold, equivalent to 4.2 per cent of Australia’s population, so CCI is equally prevalent in Australia.
“Problems with the process of selling CCI have been identified by regulators and consumer representative groups over a number of years,” the Australian Securities and Investments Commission (ASIC) said in an October 2011 review of how 15 banks sold 662,000 CCI policies in 2009. With the complaints dating back to 1991, the situation was allowed to persist for more than 20 years, as it did in the UK.
'Misleading representations'
According to ASIC, 53 per cent of the CCI policies were sold when customers applied for credit cards and 36 per cent were sold with personal loans. Banks converted 19 per cent of approaches into sales, or 45 per cent when sold with personal loans. Why are they so good at selling CCI? ASIC described “persistent issues with the sale and distribution” of CCI among the 15 banks including selling CCI without customers’ knowledge or consent, harassment and use of pressure tactics, “misleading representations” during the sales pitch and “serious deficiencies” in the prepared sales scripts. Examples include selling CCI to people like casual workers who aren’t eligible to claim and upfront premiums being capitalised with consumers unaware they’re paying interest on the premium.
ASIC’s report made 10 recommendations to remedy the situation. It also found an unusually high proportion of CCI claims are denied – 13 per cent versus two per cent of personal general insurance claims, that banks reported a high number of complaints but disproportionately low breaches and a “relatively low” net loss rate of 34 per cent in 2010, namely it is extremely profitable. The UK Competition Commission found that of the £5.5 billion generated each year by PPI sales, £1.4 billion is excess profit.
CCI claims: 'difficult and stressful'
James Middleweek, investment manager at litigation funder IMF Bentham, said while most of the money paid as car insurance premiums ends back with policyholders, insurers keep the bulk of CCI premiums. Little wonder they reward banks handsomely to flog CCI. When ASIC dug deeper into the high level of claim denials and low net loss rate, it found making a CCI claim can be difficult and stressful for claimants already anxious because they’ve lost their job or can’t work due to an accident or illness. “It is a poor product, bad value and mis-sold,” said Middleweek. “It’s also one of the banks’ highest margin products."
A report by the Australian Prudential Regulation Authority in 2013 that found CCI paid 23 cents in the dollar back to consumers, even lower than the 34 cents in the dollar that ASIC had reported CCI paid in 2010. “The fact that the value of claims is falling speaks for itself,” said David Leermakers, senior policy officer at the Consumer Action Law Centre. “Clearly it isn’t a good value product.” The centre found many people bought CCI without knowing it “so this is one of the areas we are very interested in,” Leermakers said.
Tinkering after the event
In May 2009 the Financial Services Authority instructed banks to stop selling single premium PPI where premiums are added onto the loan as an upfront lump sum. The Competition Commission banned the sale of PPI at the time credit facilities are granted in 2010. Leermakers doesn’t advocate banning CCI but believes commissions lead it to be being sold regardless of whether it is appropriate so insurers are also at fault. They persist in paying high commissions despite that being a big driver of the UK’s most costly personal finance scam.
When asked to comment, ASIC responded banning PPI wasn’t warranted “by the specific issues or concerns raised by our investigations” but conceded “we still have some concerns with these products and how they are sold and will therefore continue to maintain focus on this issue.” The UK regulators continue to review the banks’ redress processes and banks have £24 billion of PPI-related provisions. Despite finding the same practices, ASIC never took any hard action against the banks. “It is like they are an observer,” Middleweek said. “They tinker after the event.”