Law firm Slater and Gordon announced it is investigating the value of launching the class action, given that card holders have paid “tens of millions of dollars” for insurance that, in practice, provided “little or no coverage”.
“Consumer credit insurance in Australia is riddled with consumer protection issues and is notorious for being unsuitable and consistently poor value,” the firm’s class actions senior associate Andrew Paull said.
“We have found substantial evidence to suggest that a large number of Australian credit card holders are paying hundreds, if not thousands, of dollars a year for essentially worthless insurance.
“Many policyholders are ineligible to claim some or all of the available benefits and others are either completely unaware they have the insurance or incorrectly believe it is a requirement for obtaining a credit card.”
Mr Paull added: “The banks should know when this insurance is likely to be of no or limited value to their customers, however the evidence suggests that they have continued to push these products widely and have collected millions in premiums while doing so.”
There are a range of bank customers who may be eligible to join the action having received dodgy coverage, according to Mr Paull, including those who are self-employed.
He quoted figures from the Australian Prudential Regulation Authority (APRA) as evidence, noting that between 2011 and 2016, consumer credit insurance claims were rejected five times more often than general insurance claims.
In 2017, APRA figures showed only 25 per cent of credit insurance claims received a payout – well below the “average payout ratio of 74 per cent for other types of insurance”, Mr Paull said.
“Casual, contract or self-employed workers are also usually subject to exclusions from income protection coverage, but often unaware they are ineligible when they agree to purchase the insurance,” he said.
“The courts have previously found that the sale of consumer credit insurance to those who are unlikely to be able to claim may constitute unconscionable conduct.
“If a breach of the ASIC Act was proven, affected classes of people would be able to recover compensation from their insurance providers.”
Mis-sold insurance has previously elicited responses from regulators. In January, insurance giants Allianz and Suncorp were ordered to refund $62 million for add-on insurance sold through car dealerships.
QBE Insurance faced similar action in mid-2017, when it was forced to refund almost $16 million in mis-sold insurance.