Australia’s major lenders have been hit with large claims for compensation after years of selling near-worthless consumer credit insurance (CCI).

Last week NAB agreed to a settlement of $49.5 million in a class action brought against it by Slater and Gordon, and two days later ANZ and Westpac were hit with near-identical suits by the law firm. The proceedings claim the banks wrongfully sold insurance to “potentially hundreds of thousands of unsuspecting, vulnerable customers”.

“Banks have been abusing their power by selling junk insurance products, adding thousands to their customers’ credit card bills or personal loan repayments while providing little or no benefits,” Slater and Gordon Practice Group Leader Andrew Paull said.

Sellers of CCI have raked in $1.78 billion in premiums in Australia over the past eight years, but returned only 11% of that in claims, the Australian Securities and Investments Commission found. Car insurance, in contrast, carries an average pay rate of 89 cents in the dollar.

Since 2011, ANZ’s credit card cover has underperformed even those meagre industry-wide returns, with a CCI payout rate of less than 7 cents in every dollar of premium earned. Westpac’s CCI returned less than 12 cents in the dollar.

Those figures are being used by Slater and Gordon to demonstrate why CCI has been unusually profitable for banks and insurers, but extremely poor value for their customers.

The law firm says many people who purchased CCI had disabilities, or were unemployed or critically ill, and were therefore not eligible to claim. Others were falsely led to believe the insurance was free, or mandatory.

All the “big four” banks have stopped selling CCI. Allianz Australia also ceased selling it after refunding more than $8 million to 15,000 consumers who bought the product from 2011. In 2018, the Commonwealth Bank implemented a refund program in relation to CCI.