The National Australia Bank (NAB) has agreed to pay $49.5M to settle a class-action lawsuit brought against it on behalf of tens of thousands of customers to whom it sold junk credit card and personal life insurance.
The amount to be paid to each customer has not been decided yet, but the court has that by Christmas, each consumer should be notified about whether they are eligible for a payout or not.
The law firm Slater and Gordon, which filed the suit alleged that NAB and its subsidiary MLC Limited misled people with false information to sell consumer credit insurance (CCI). As a result of this, people who were least likely to avails of consumer credit insurance, like pensioners, unemployed people, critically ill patients, and casual workers, bought it.
CCI products are designed to guard against default over loan or credit card payments. The unemployed, the critically ill, and pensioners hardly qualify for any loan, be it for a car or a house or even a credit card. They just about manage the bare minimum wages to survive; the chances of them splurging money through their credit cards are non-existent. When a group of people does not qualify for obtaining a loan or a credit card, selling insurance to them over defaulting on a credit card or loan repayments makes no sense.
CCI policies offer insurance in case someone is ill or loses his job and is unable to pay monthly installments of car or home loan or credit card payments. The customer’s payments will be covered by his CCI insurer.
The Australian Securities and Investments Commission (ASIC) scrutinized CCI services (including mortgages and personal loans) provided by 11 biggest banks, including Westpac, ANZ, and Commonwealth Bank.
In its report published in July this year, the ASIC concluded that, on average, customers received only 11 cents per dollar invested in Consumer Credit Insurance products linked to their credit cards.
In November, the banking royal commission criticized the cold selling of CCI products.
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