The Australian Securities and Investments Commission (ASIC) has 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 substantially higher than what the bank advised customers.
The proceedings concern CBA’s conduct in relation to an overcharging error with two products, including the Simple Business Overdrafts and Business Overdrafts between December 2011 and March 2018.
The rate, which customers were advised would be 16 per cent per annum in most cases, jumped to around 34 per cent per annum.
The total overcharged interest exceeded $2.9 million.
ASIC has alleged that from 29 December 2011 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); and
- Due to a systems error, charged more than 2,200 customers a different, higher interest rate on their overdraft accounts (in most cases, around 34 per cent per annum).
ASIC also alleged that CBA attempted to manually fix the overcharging error after a complaint was made to the bank in 2013.
According to the corporate regulator, the manual fixes were unsuccessful, and customers continued to be overcharged.
ASIC has alleged that from 1 December 2014 to 31 March 2018, being within the six-year limitation period, CBA engaged in conduct that contravened certain misleading and deceptive conduct provisions of the ASIC Act and breached general obligations owed by financial services licensees under the Corporations Act.
Specifically, ASIC has alleged that on 12,119 occasions, CBA:
- Made a misleading representation in contravention of section 12DB(1)(g) of the ASIC Act;
- Engaged in misleading or deceptive conduct, or conduct that was likely to mislead or deceive, in contravention of section 12DA(1) of the ASIC Act; and
- Failed to comply with its obligation to comply with financial services laws in contravention of section 912A(1)(c) of the Corporations Act.
ASIC is seeking declarations, pecuniary penalties and other orders against CBA.
The date for the first case management hearing is yet to be scheduled by the court.
CBA’s conduct was the subject of a case study by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
CBA acknowledges proceedings
The bank issued a statement acknowledging ASIC’s proceedings, stating that it has “cooperated fully” with ASIC’s investigation and “does not intend to defend the proceedings”.
“The problems that caused the error have been addressed and 2,269 customers have been sent refunds,” CBA said.
“The combined total of refunds sent to customers was $3.74 million, and the remediation program has now concluded.”
According to ASIC, it previously obtained a $5 million penalty against CBA for failures of their AgriAdvantage Plus Package.
These failures included, among other things, overcharged interest on loans and fees.
Malavika Santhebennur is the features editor on the mortgages titles at Momentum Media.
Before joining the team in 2019, Malavika held roles with Money Management and Benchmark Media. She has been writing about financial services for the past six years.