ASIC targets CBA for consumer protection breaches

The Australian Securities & Investments Commission (ASIC) has commenced civil proceedings in the Federal Court against the Commonwealth Bank of Australia (CBA).

The proceedings are in relation to two matters that were case studies in the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, with ASIC alleging contraventions of the bank’s responsible lending obligations and consumer protection breaches under the National Consumer Credit Protection Act 2009, as well as the ASIC Act.

ASIC has alleged that the bank contravened the consumer protection provisions of the ASIC Act and breached general obligations under the Corporations Act over the bank’s failures of their AgriAdvantage Plus Package.

The AgriAdvantage Plus Package (AA+ Package) was sold to customers between May 2005 and Decemver 2015 and entitled customers to benefits in the form of fee waivers and interest rate discounts as well as bonus interest on savings on 22 CBA products, in exchange for the payment of package fees.

According to ASIC's allegations, a total of 8,659 package customers were harmed on 131,542 occasions due to CBA not providing certain benefits to customers and, as a result, customers were overcharged fees and interest on loans and fees, and underpaid interest on savings. 

CBA also reportedly overcharged package fees to certain customers.

As a result of CBA’s conduct, ASIC claims the bank benefitted from a total of approximately $8.1 million ($8,087,276) in incorrectly charged fees and interest on loans, and underpaid interest on savings.

The case also alleges that CBA had no processes in place to check whether customers were receiving benefits.

The regulator alleges that on 7,077 occasions, CBA represented to 13,063 customers that it had adequate systems and processes in place to ensure customers received benefits in accordance with the terms and conditions.

And that on 18,679 occasions, CBA accepted payments for the provision of the package benefits when there were reasonable grounds to believe CBA would not be able to supply the promised benefits.

ASIC will be seeking a total civil penalty of up to $5 million in this case. The date for the court proceedings has not been confirmed.

Commenting on the AgriAdvantage Plus Package matters, CBA chief executive Matt Comyn stated that the issue was discovered and reported in 2014, leading to the package being withdrawn from sale and closed to existing customers by the end of 2015.

“We apologise to those customers who at the time didn’t receive their AgriAdvantage Plus package benefits or were overcharged fees. 

“We have sent refunds of approximately $8 million (including interest) and there were 8,659 customers impacted. 

“Failures of this sort are unacceptable,” Mr Comyn said.

NCCP breaches over credit card limit increase

Further, the regulator has commenced proceedings against CBA for alleged contraventions of the responsible lending provisions of the National Consumer Credit Protection Act 2009 (NCCP), after failing to verify the financial situation of a problem gambler before providing the individual with a credit card limit increase.

As heard during the royal commission, ASIC alleges that, in January 2017, CBA engaged in conduct that contravened the provisions of the NCCP when it failed to undertake reasonable inquiries and verification of the individual’s financial circumstances prior to making an assessment to increase his credit limit.

The bank is reported to have further breached its obligations in failing to assess whether the credit limit increase was unsuitable for the individual, and for subsequently providing the credit limit increase.

Additionally, in its conduct, ASIC alleges that the bank failed to comply with section 47(1)(d) of the NCCP.

The amount of any penalty will be determined by the court and each party will be making their own submissions to the court on the penalty range.

The proceeding will be listed for directions on a date to be determined by the court.

Since the case in question, the law has changed, and now credit card providers must consider whether a consumer can repay an increased credit limit within a three year period set by ASIC. The law now does not allow credit limit increase offers like those Mr Harris received.

Speaking of the case, CBA CEO Matt Comyn said: “In 2016 and 2017, we did not do the right thing by this customer, and we apologise.

“In recent years, we have implemented a number of changes to support our customers’ needs.

“The combination of support services and customer-initiated transaction blocks now provides our customers with greater control over their access to credit,” he said.

CBA said it intends to admit to the allegations made by ASIC for both matters and does not intend to defend the proceedings.

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