New sales practices announced for consumer credit insurance

Sydney, 1 August 2017: Ahead of the release of the new Code of Banking Practice, the banking industry has today announced changes to the way consumer credit insurance (CCI) is sold.

“Customers need to be able to make an informed and independent decision about consumer credit insurance,” Australian Bankers’ Association Chief Executive Anna Bligh said.

“For many customers, CCI is a cost effective way to protect against unexpected life changes impacting their ability to repay a credit card or a loan. However, for some customers, CCI may not best suit their circumstances.

“Banks recognise they can do more to make sure when they sell CCI, their customer doesn’t just get information about the costs and the features, but they also have time to understand if this type of insurance is right for them,” she said.

“The changes will mean bank staff can’t sell a customer CCI until at least four days after a credit card account is opened. Currently, banks can sell CCI at the same time as a new credit card account is opened.

“Bank staff will also have to provide more information about the insurance and take a separate record that the customer has consented to have the product. Currently, there are different procedures in place, so this is intended to make sure banks adopt more consistent practices,” Ms Bligh said.

The new Code of Banking Practice will include:

• A new deferred sales model for CCI on credit cards sold through bank branches or call centres, so customers can take some time to make a decision about the product and aren’t at risk of misunderstanding that CCI is part of the credit card.
• New approaches to sales of CCI on credit cards sold through online and digital channels, so customers get interactive information to help them through the process.
• New disclosure for CCI on credit cards and loans to make sure customers get targeted information so they can better understand this type of insurance.
• New consent processes to make sure all customers are clear about the conditions and costs of CCI they have purchased.

The independent review of the Code of Banking Practice, which measured how bank conduct standards are meeting community expectations, and ASIC’s recent review of sales practices in retail banking both identified improving sales practices of CCI.

“Banks aren’t the only providers of CCI, but after consulting further with ASIC and consumer groups, the banks want to improve sales practices and be part of driving better outcomes for customers across the market,” Ms Bligh said.

“Improving sales practices and increasing transparency of products and services is part of our reform program to raise standards in banking.

“Banks are also changing how they pay their staff so they won’t be financially rewarded for meeting sales targets or cross selling products, including related to CCI,” Ms Bligh said.

The ABA participated in an initial workshop hosted by ASIC on 27 July. The workshop was an opportunity for banks and consumer groups to discuss this new way for banks to sell CCI. Banks will continue to work with ASIC and consumer groups on implementation of these new sales practices.

ENDS

Contact: Stephanie Arena 0477 470 677