ASIC has announced that following concerns raised by it, CGU Insurance Limited (CGU), together with Accident and Health International Underwriting Pty Ltd (AHI) have agreed to refund consumers over $2,000,000 in payday loan consumer credit insurance (CCI) premiums and fees. The insurance was sold by The Cash Store Pty Ltd (in liquidation) (The Cash Store) alongside payday loans to consumers.

Background: Allianz refunds

In ASIC v The Cash Store Pty Ltd (in liq) [2014] FCA 926 the Federal Court found that TCS had acted unconscionably in selling a consumer credit insurance (CCI) product. The insurance covered consumers against the risk of becoming unemployed, sick or dying.

It was offered regardless of whether the customer was on Centrelink benefits or were obtaining a loan for a very short period of time.

Justice Davies concluded that the policies would rarely provide effective coverage for payday borrowers who had a median term loan of 13 days.

The CCI product was developed and distributed by a number of entities, including AHI via an underwriting agency agreement with Allianz (up until March 2011), and later through an underwriting agency agreement with CGU (from March 2011).

CGU was the insurer for the CCI product for two periods; between 1 March 2011 and 31 March 2012 and 1 April 2013 and 31 October 2013. AHI temporarily stopped issuing the CCI product between April 2012 and April 2013. While off the market, AHI modified some of the terms on which cover was offered and subsequently recommenced sales of the modified CCI product through The Cash Store from April 2013 until October 2013. ASIC was concerned that the modified CCI product, despite some improvements, continued to offer very limited benefit overall.

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
•appoint an independent external firm to review AHI, a wholly owned subsidiary of CGU, who was responsible for underwriting the payday loan insurance product.