Commonwealth Bank (CBA) is facing penalties and other orders after the Federal Court last week found the bank charged business customers interest at more than double the rate they were advised.
The Australian Securities and Investments Commission (ASIC) initiated proceedings against CBA in November 2020, alleging the bank overcharged interest on business overdraft accounts more than 12,000 times between December 1, 2014, and March 31, 2018.
CBA agreed with the corporate watchdog’s allegations, and the court ruled on Friday the bank made false or misleading representations and engaged in misleading and deceptive conduct.
The bank’s conduct, which was examined during the banking royal commission in 2018, concerned business overdraft accounts for which customers were told the interest rate was, in most cases, 16% per annum.
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However, a systems error resulted in more than 1,510 customers being charged a much higher rate of 34% in most cases.
The total overcharged interest was more than $2.2 million, said ASIC, which believes the conduct was the result of inadequate systems and processes at the bank.
In a statement provided to SmartCompany, CBA said it has provided $3.74 million in refunds to 2,269 customers who were affected by an overcharging error with its simple business overdrafts and business overdrafts between December 2011 and March 2018.
The bank cooperated with ASIC’s investigation and had previously said in December 2020 that it would not be defending the legal proceedings.
“The problems that caused the error have been addressed … and the remediation program has now concluded,” said a CBA spokesperson.
In its ruling, the court found CBA breached sections 12DA(1) and s12DB(1)(g) of the ASIC Act on 12,119 occasions.
On each of these occasions, the bank was also found to have breached s912A(1)(c) of the Corporations Act, which relates to its general obligation to comply with financial services laws as a financial service licensee.
During the baking royal commission, it was revealed that CBA first discovered the overcharges after a customer complained in 2013, but the bank did not notify ASIC until 2018.
“When it did detect the problem, it took some time to remedy the consequences,” said Kenneth Hayne in his interim report from the royal commission.
“And on any view, what had happened was that the bank had charged customers interest to which the bank was not entitled. An event of that kind demands swift action.”
Commenting on the court’s ruling, ASIC commissioner Sean Hughes said it is essential that financial services institutions like banks have the right systems and controls in place to “deliver on promises made to their customers”.
“By CBA failing to take adequate steps to rectify this error after it was identified, this results in customers continuing to be overcharged,” he said in a statement.
“Investment in good systems needs to be prioritised by all financial services institutions to ensure trust in our financial system is re-built and to avoid a repeat of these failures in the future.”
A penalty hearing will be held on April 6, at which time ASIC will seek pecuniary penalties and other orders against CBA.
This latest action comes after CBA was fined $5 million in June 2020 for overcharging interest on loans and fees for its AgriAdvantage Plus Package.