A company providing payment protection insurance is to pay a total of about $37,000 to 44 claimants after admitting a possible breach of the Fair Trading Act, the Commerce Commission says.
Beneficial Insurance sold a credit contract indemnity policy to provide cover for vehicle and personal loan payments in events such as redundancy, sickness or injury.
From 2006, people who made claims on the policy were only paid out a percentage, ranging from 20 to 90 per cent of the loan payments, if they had received partial income from another source such as the Accident Compensation Corporation, the commission said today.
In the commission's view, the policy wording and statements on Beneficial Insurance's website meant that consumers were likely to expect that the full amount of loan repayments would have been covered.
It appeared that claimants only found out that Beneficial Insurance would not pay the full credit contract payment when their claims were processed.
One claimant who suffered an injury that prevented him from working received only $72 from Beneficial for the four weeks he was off work, instead of the $372 that he was required to pay under the credit contract. The claimant went into default on the loan and was charged default interest and fees, the commission said.
As part of an out of court settlement with the commission, Beneficial acknowledged it may have breached the Fair Trading Act and had agreed to pay the 44 affected claimants a total of $37,000.
That included the difference between the credit contract payments and the partial payout already made by Beneficial together with any default interest and other charges incurred on the actual loans.
Beneficial had already paid out to most affected claimants, and was in the process of notifying claimants who no longer had active loan accounts, the commission said.
During the commission's investigation, Beneficial changed its practice and from last April agreed to pay the full amount of credit contract repayments for the claim period provided the claimant did not receive full compensation from other sources.