The corporate watchdog is aiming to fast-track billions in customer compensation with an overhaul of its industry guidance for remediation outcomes as large-scale programs run by the big banks and major wealth players continue to drag on during the coronavirus pandemic.
The imminent launch of a review of its remediation guidance is designed to clarify the regulator’s “expectations about how firms should be conducting consumer-centric” compensation programs. It comes as the Australian Securities and Investments Commission reveals it has clinched $160 million in refunds for customers sold junk consumer credit insurance (CCI) by some of the country’s biggest banks and insurers.
Following ASIC’s investigation into the CCI market, which covers policies sold to protect consumers from falling behind on loan repayments but which were notorious for blanket exclusions and low claims payout ratios, almost a dozen companies involved in the probe have stopped selling the products.
That includes recent decisions to stop selling products in the last year, including ANZ canning home loan insurance, Bank of Queensland dumping personal loan and mortgage policies and Commonwealth Bank ending the sale of home loan insurance.
Non-bank lender Latitude, which was heavily reliant on the products, also stopped selling credit card and personal loan insurance, while mutual banks CUA and People’s Choice ended credit insurance sales.
The regulator is continuing to weigh up court action against the companies in the probe, while ASIC is also continuing to track outstanding policies in the market.
ASIC found only 11c in the dollar was paid in claims on credit card policies, and only 19c in the dollar across the broader CCI market, with companies selling products to consumers who couldn’t claim or were unlikely to need the cover, often with pressure tactics.
The products were infamously scrutinised in the royal commission when it was alleged former CBA boss Ian Narev told current chief Matt Comyn to “temper your sense of justice” when the junior executive raised concerns about the junk insurance products.
Lenders and insurers have paid $128m in compensation to 430,000 customers and are due to pay a further $32m to another 122,000 consumers.
ASIC deputy chair Karen Chester said the regulator’s information gathering, enforcement and remediation showed junk insurance was both “unfair to consumers and ultimately costly to business”, and products that would be prohibited under the incoming design and distribution laws, scheduled to come into force in 2021.
“There is nothing fair about selling ongoing consumer credit insurance to a 65 year old when eligibility falls away at 66. There is nothing fair about selling insurance with involuntary unemployment cover to an unemployed worker,” Ms Chester said.
“ASIC’s work has ensured these remediation programs are not only consumer-focused but also robust,” she said.
ASIC is overseeing more than 100 remediation programs expected to pay out more than $2 billion to consumers on top of the almost $1 billion that has already been returned. About $10 billion has been set aside by the industry for remediation programs.
However, ASIC has found many past and current programs have failed to reach a good standard of consumer outcomes.
In late March, ASIC said it was working with financial institutions “to further accelerate the payment of outstanding remediation to customers”.
A number of the remediation programs which related to poor financial advice or fees for no service have been stymied by missing paperwork and legacy technology systems.
ASIC’s regulatory guide 256 requires companies adequately resource review and remediation programs under threat of a breach of licensing obligations, which includes appointing appropriately qualified reviewers and carrying out reviews in a timely manner that is consistent and fair.
ASIC said its review of the guidance was to ensure it applied effectively across the entire financial services sector, and to clarify ASIC’s expectations about how firms should be conducting consumer-centric remediation. “It will also seek to improve transparency about consumer remediation outcomes,” ASIC said.