CBA fined for overcharging interest

The Commonwealth Bank of Australia (CBA) has been ordered to pay a $5 million penalty after the Federal Court ruled that it had breached its obligations under the ASIC Act and Corporations Act for failures in its administration of its AgriAdvantage Plus Package (AA+ Package) between May 2005 and December 2015.

The bank has also been ordered to publish a corrective notice in the form determined by the Federal Court.

Under the AA+ Package, customers were meant to receive fee waivers, interest rate discounts and bonus interest on savings, in exchange for the payment of package fees on 22 CBA products.

However, after ASIC commenced proceedings against CBA on 16 March 2020, the bank has since acknowledged that:

• Contrary to the terms of the AA+ Package, it had not provided certain benefits to customers and, as a result, customers were overcharged fees and interest on loans and fees, and underpaid interest on savings.
• The cause of its failures were the “highly manual” nature of CBA’s systems by which the AA+ Package benefits were applied, and the lack of system or processes to detect whether customers were receiving benefits.
• A total of 8,659 customers were impacted by CBA’s conduct on 131,542 occasions, in circumstances where CBA benefited from a total of over $8 million in incorrectly charged fees and interest on loans, and underpaid interest on savings.

In handing down the Federal Court’s decision, Justice Beach found that:

• CBA breached its obligation to do all things necessary to ensure that the financial services covered by its AFSL were provided efficiently, honestly and fairly;
• CBA failed to establish and maintain systems and processes to ensure it could provide the AA+ Package benefits in accordance with the AA+ Package terms and conditions; and
• the pecuniary penalty of $5 million was appropriate having regard to the number of contraventions, the prejudice to customers, the duration of the contraventions and the inadequacy of CBA’s internal systems and processes.

Justice Beach stated that the penalty imposed took into account the “very substantial mitigating circumstances”, including the determination that the breaches were not deliberate and that there has since been “complete rectification and remediation”.

Reflecting on the decision, ASIC deputy chair Daniel Crennan QC commented: “ASIC considers that CBA’s conduct in this matter, which was examined in detail during the financial services royal commission, was the result of inadequate systems and processes.

“Because of its conduct, CBA failed to deliver its AgriAdvantage package efficiently, honestly and fairly as it was obliged to do under s912A of the Corporations Act. As a result, over 8,000 customers were affected.”

“As recognised by Justice Beach in his judgment, CBA took steps to address the harm that the conduct caused and, importantly, made admissions as to its contraventions of the law at the first possible opportunity in the litigation.”

He concluded: “ASIC’s expectation of the entities that it regulates is that, in appropriate circumstances, when ASIC issues proceedings against them, they ought to make admissions and engage in the penalties process at the earliest possible opportunity.”

[Related: AML/CTF breaches due to human and technological error]