Insurers agree to refund $2m in ‘useless’ payday premiums
Insurers, CGU Insurance Limited and Accident and Health International Underwriting Pty Ltd (AHI) will refund more than $2 million to clients of liquidated payday lender, The Cash Store, for "useless" premiums.
The insurers agreed to provide refunds after concerns were raised by the Australian Securities and Investments Commission (ASIC) over the premiums that were provided to The Cash Store clients.
The agreement followed a Federal Court ruling that The Cash Store had "acted unconscionably in selling a payday loan consumer credit insurance (CCI) product".
ASIC's court action against The Cash Store was in respect of its conduct between August 2010 and March 2012. In this period:
- The Cash Store sold the CCI product to 182,838 customers;
- these customers paid $2,278,404 in premiums for cover; and
- only 43 claims were paid to consumers, totalling only $25,118.
To address ASIC's concerns and minimise the risk of this type of conduct occurring again, CGU and AHI have agreed to:
- refund total amounts paid by consumers, together with interest, for all sales of the CCI product for which CGU was on risk for the product (including sales in 2013 when a modified version of the policy was reintroduced);
- review claims it denied where the consumer did not meet the eligibility requirements for a claim at the point of sale under both the initial and modified versions of the policy;
- appoint an independent external firm to review its supervision of third parties; and
- appoint an independent external firm to review AHI, a wholly owned subsidiary of CGU, who was responsible for underwriting the payday loan insurance product.
Earlier this year, Allianz agreed to refund approximately $400,000 in CCI premiums relating to policies sold by The Cash Store, and the loan funder, Assistive Finance Australia Pty Ltd, which was also found to have made "systemic breaches of the responsible lending requirements under the National Credit Act".
AUTHOR
Nicholas O'Donoghue
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