A payday lender has been found to have engaged in unconscionable conduct by the Federal Court, following an investigation into the mis-selling of consumer credit insurance.
The Federal Court has ruled that The Cash Store (TCS), and loan funder, Assistive Finance Australia (AFA) breached consumer credit laws and engaged in unconscionable conduct in the sale of insurance. The ruling followed proceedings launched by the Australian Securities and Investments Commission in September 2013.
According to the Court, TCS sold consumer credit insurance to customers to cover their loans, despite it being unlikely that the insurance could ever provide any benefit to the customer. TCS was criticised for actively encouraging staff to sell the insurance, which was not payable to unemployed customers, because the majority of the TCS lending customers were on low incomes or in receipt of Centrelink benefits.
During the relevant period, TCS sold consumer credit insurance with 182,838 of 268,903 credit contracts (68%), collecting premiums of approximately $2.27 million. Only 43 policies received a settlement claim, totalling $25,118, leaving $1.3 million as income for TCS.
ASIC Deputy Chairman, Peter Kell, said he welcomed the Court’s findings in relation to the systemic mis-selling of insurance.
“This confirms that a finding of unconscionable conduct and associated remedies are available for this sort of systemic mis-selling and helps clear the way for ASIC to take further actions of this type in relation to inappropriate add-on insurance,” Mr Kell said.
The matter will be listed for a further hearing in relation to the civil penalties payable by TCS and AFA after 17 November 2014.
Consumer credit insurance was the product at the heart of the UK’s biggest financial mis-selling scandal in history. For more, click here to read our feature story in the latest edition of riskinfo eMagazine.
