Credit card revenue enhancements, add-on items like insurance, were easy targets for the U.S. Consumer Financial Protection Bureau (CFPB) a decade ago. It looks like the Australian credit card issuers did not get the memo. Two top Australian credit card issuers now face regulatory scrutiny.
Insurance Business Magazine, a trade journal, reports on a class action in Australia:
Class actions have been launched against banking giants ANZ and Westpac for selling worthless consumer credit insurance to vulnerable customers.
Both class actions were filed by Slater and Gordon in the federal court last week, months after the firm settled a similar case with NAB for $49.5 million to compensate customers who were mis-sold the insurance.
The class actions allege the insurance policies provided little or no benefit to the banks’ customers but generated them hundreds of millions of dollars in revenue; and that the insurance was added to customers’ loans and credit cards without customers’ consent or without them being told it was optional.
“Both banks stopped selling this junk insurance last year, and ASIC has now outright banned the practice of cold calling potential customers,” said Andrew Paull, Slater and Gordon practice group leader. “These are welcome developments, but not enough has been done to compensate the past victims of these predatory sales tactics.”
Unlike the U.S. issue, which found some banks forcing cardholders into credit card insurance, the Australian question of the day is on pricing.
“The banks enjoyed extraordinary profit margins on these products,” Paull said. “Between 2011 and 2018, ANZ paid out claims totalling just 6.9 cents for every dollar they collected in credit card insurance premiums. In comparison, motor vehicle insurance pays out approximately 85 cents for every dollar of premiums.”
The timing of the issue is particularly impressive. The complaint cites problems dating back to 2011. As the Reserve Bank of Australia was fiddling with interchange pricing, using cost accounting to drive down revenue, banks were off building revenue enhancements to protect profits.
Sometimes, the right hand needs to know what the left hand is doing!
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
