The Commonwealth Bank (CBA) is set to refund $16 million to customers who bought questionable add-on insurance policies, as it dumps the sale of the controversial products.
The announcement comes just days after banking royal commissioner Kenneth Hayne delivered a blunt warning to the banks about secrecy.
In a statement the Commonwealth Bank said it had decided to end sales of its current CreditCard Plus and Personal Loan Protection products.
Senior executive Matt Comyn said some people who bought the products may not have been eligible to receive all related benefits.
“We have found it hard to achieve the right balance between simplicity and accessibility on the one hand, and limiting the product to the right group of target customers on the other hand,” he said.
The CBA had applied to the royal commission to keep internal documents about its add-on insurance policies – promoted via credit cards, and personal, car and home loans – under wraps.
While Commissioner Hayne agreed to keep clients’ details private, he rejected CBA’s approach.
Last week he said CBA had acknowledged that its conduct over add-on policies “fell short of community standards and expectations”.
[It] is conduct the consequences of which CBA has sought to remedy by making payments totalling several million dollars.”
Last year, the bank was forced to refund $10 million to 65,000 CreditCard Plus customers after the Australian Securities and Investments Commission (ASIC) alleged the insurance add-ons had been oversold to people worried about meeting repayments.
CBA will also pay back $586,000 to 10,000 customers over-insured through its Home Loan Protection consumer-credit insurance.
The products will be withdrawn immediately from the market and the bank said it was working to deliver a new “protection solution” for customers.
‘Junk insurance’ is on its deathbed: consumer advocates
The Consumer Action Law Centre, Financial Rights Legal Centre, and Financial Counselling Australia have jointly condemned the sale of so-called junk insurance.
They said CBA’s move showed credit card and loan insurance add-ons were on their death bed.
“The biggest bank in Australia has now effectively admitted that consumer-credit insurance is junk,” said Gerard Brody, the CEO of the Consumer Action Law Centre.
“It’s time for others to follow suit and stop selling this rubbish. Consumer-credit insurance needs to be buried away.”