Commonwealth Bank will refund more than 65,000 customers a total of about $10 million after selling them unsuitable insurance when they applied for credit cards.
The Australian Securities and Investments Commission (ASIC) on Monday said CBA sold CreditCard Plus insurance for credit card repayments to 65,000 customers who were unlikely to meet the employment criteria and would be unable to claim the insurance.
CBA would also repay about $586,000 in premiums to another 10,000 customers it overinsured when they took out a home loan with the bank.
When a customer signs up for a mortgage, personal loan or credit card, banks often promote consumer credit insurance (CCI), which claims to help cover repayments if they lose their job, get sick or die.
ASIC deputy chairman Peter Kell said it was unacceptable that customers were sold insurance that didn't meet their needs.
"Consumers should not be sold products that provide little or no benefit, and banks should have processes in place that ensure this," he said.
ASIC said CBA and CommInsure identified the issue and reported it to the watchdog.
ASIC earlier this month announced that banks had agreed to hold off on selling CCI to customers for at least four days after they'd applied for a card in a branch or over the phone, rather than on the spot.
It said this type of insurance had long been problematic as customers were often unaware they had bought the cover, many ended up being ineligible when they made a claim, and the amount paid out by banks was much smaller than what customers paid in premiums.
News of the refunds comes as CBA announced chief executive Ian Narev will leave the bank by June 30 next year, and as it faces allegations it repeatedly breached anti-money laundering laws.