CBA liable for overcharged interest

The Federal Court has made declarations that the Commonwealth Bank of Australia (CBA) made false or misleading representations and engaged in misleading and deceptive conduct on 12,119 occasions when charging a rate of interest on business overdraft accounts substantially higher than what its customers were advised.

On 30 November 2020, the Australian Securities and Investments Commission (ASIC) commenced civil penalty proceedings in the Federal Court against the Commonwealth Bank of Australia (CBA) for charging an interest rate on business overdraft accounts that were alleged to be substantially higher than what the bank advised customers. The issue was the subject of a case study by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

The court order, made on Friday (12 February), noted that CBA had admitted the facts and allegations made by ASIC.

ASIC alleged, and CBA admitted, that from 1 December 2014 to 31 March 2018, CBA:

• provided customers with terms and conditions for certain credit facilities that stated an interest rate to be charged or that had been charged (in most cases, 16 per cent per annum);
• sent periodic account statements to customers referencing the rate at which interest rate was being charged (in most cases, 16 per cent per annum); and
• due to a “systems error”, charged more than 1,510 customers a different, higher interest rate on their overdraft accounts (in most cases, approximately 34 per cent per annum).

The total overcharged interest exceeded $2.2 million. CBA has already set up a remediation program for affected customers, with compensation reaching into several million dollars.

As such, the court has made a declaration that on each of the 12,119 occasions that CBA breached the ASIC Act, it also breached its general obligation as a financial service licensee to comply with financial services laws, in contravention of the Corporations Act.

ASIC said it considers that CBA’s conduct in this matter resulted from inadequate systems and processes.

ASIC Commissioner Sean Hughes commented: “Financial services institutions need to have appropriate systems, governance and controls in place to ensure they deliver on promises made to their customers. By CBA failing to take adequate steps to rectify this error after it was identified, this resulted in customers continuing to be overcharged.

“Investment in good systems needs to be prioritised by all financial services institutions to ensure trust in our financial system is rebuilt and to avoid a repeat of these failures in the future.”

ASIC will seek pecuniary penalties and other orders against CBA at a penalty hearing on 6 April 2021.

Last year, CBA issued a statement acknowledging ASIC’s proceedings, stating: “The problems that caused the error have been addressed and 2,269 customers have been sent refunds.”

“The combined total of refunds sent to customers was $3.74 million, and the remediation program has now concluded.”

The regulator had previously obtained a $5-million penalty against the bank for failures of its AgriAdvantage Plus Package, which included, among other factors, overcharged interest on loans and fees.

CBA has not yet released a statement regarding the court declaration.

[Related: CBA faces civil proceedings for overcharging interest]