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Junk insurance policies are being passed, often without their knowledge, to car buyers. Picture: iStock
AT LEAST $350 million of worthless car loan insurance has been sold to consumers — often without their knowledge — and there’s a push to get the money back.
Consumer credit insurance (CCI) is meant to provide protection if the purchaser can’t meet repayments after losing a job, sickness, injury or death. But some sneaky sellers have signed up unemployed and seriously ill people who wouldn’t be able to make a claim — driven by commissions as high as $1800 on a $2000 premium.
An estimated 175,000 “junk†policies have been issued in the past five years, with documentation sometimes surreptitiously slipped into piles of paperwork car buyers are given to sign.
CCI has fewer claims, more denials and pays out less than other classes of cover, official statistics show. Just 23c in every dollar of premiums is returned to policyholders.
“I think CCI is of such limited value, there is a case for banning,†said Gerard Brody, CEO of the Consumer Action Law Centre, which today begins a “Stop selling junk†campaign. As part of the campaign it is launching a website, DemandARefund.com, to help people get their money back.
Also under fire are “gap†insurance and extended warranties.
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Consumer Action Law Centre's new website DemandArefund.com wants to hear from more ripped off consumers. Picture: demandarefund.comSource:Supplied
Gap insurance is supposed to pay the difference between what is owed on a car loan and what the car is insured for under comprehensive car insurance in the event the car is written-off.
Mr Brody said in many cases gap insurance was pointless if customers already had adequate comprehensive insurance, or was too expensive to be of value.
He said extended warranty cover was often riddled with restrictions and limits too low for required repairs. Plus there was too much discretion for insurers to reject claims.
When Consumer Action analysed 35 cases involving add-on financial products handled by its lawyers it found that in one in five matters, consumers had been sold the product without their
knowledge or consent.
Australians are paying $370 million a year for CCI. It’s not known how much is spent on gap insurance or extended warranties.
Additional and worthless financial insurance is being burdened on unsuspecting car buyers. Picture: iStockSource:Supplied
Zoltan Urban, of Melbourne, said he was shocked to learn there was a no-refund policy on the $3600 five-year extended warranty he took out on a second-hand Nissan Maxima when he tried to cancel after a year.
“It wasn’t fully explained to me at the point of sale, nor that it didn’t have the same terms and conditions as a general insurance contract and that payouts for repairs were at their discretion.
“If I had known that I wouldn’t have paid for it.â€
He has negotiated a refund for three years, and is still fighting for further year.
Edward Waters, of Sydney, was sold an extended warranty that did nothing more than the existing manufacturer’s warranty. When he tried to cancel, the seller refused. He later discovered a clause giving the provider discretion to decline any claim.
With Consumer Action’s help, he has obtained a refund.
For CCI to be banned, the Australian Securities and Investments Commission would first need to be given product intervention power, as recommended by the financial system inquiry. ASIC has been highly critical of CCI.