A decision by the Commonwealth Bank to delay reporting a “glitch” that caused thousands of small businesses to be overcharged interest on bank overdrafts shows a “serious misunderstanding” of how such errors can affect SMEs, says Small Business Ombudsman Kate Carnell.
The CBA’s overcharging of interest on overdrafts was discussed during the banking royal commission on Thursday.
The commission heard approximately 2800 small businesses were affected by the overcharging, including 300 customers with business overdrafts and 2500 customers with simple business overdrafts.
Both overdrafts should have attracted an interest rate of 16%; however, a “computer glitch” caused the overdrafts to be charged “double interest” of 33.94% instead.
The issue was first identified in 2013 following a customer complaint and the bank said it put in place a manual process to eliminate any overcharging. This system did not work and it wasn’t until 2015 that the system was fixed.
However, the bank chose to delay telling customers and repaying them, to the tune of $3 million, until after parliamentary hearings in March 2017 to avoid the matter being discussed at the hearings.
CBA general manager of retail products Clive van Horen appeared at yesterday’s hearing and was questioned as to whether, in this instance, the bank “was more affected by media and PR than ensuring the right thing by its customers”. He said yes.
An email from van Horen was also tendered at the hearing, which showed that he had asked if the disclosure of the overcharging could be delayed until after the hearings. In the email, he said “a delay of 10 days is immaterial”.
“I think it was a poor judgment on my part,” he told the commission. “So I will definitely take that on myself”.
Small Business Ombudsman Kate Carnell tells SmartCompany the problem with CBA’s response to the issue is the bank’s apparent lack of understanding of how something like overcharging interest can affect the day-to-day running of small businesses.
“There was no heartfelt apology, that we understand 2500 people were charged double interest or more on these overdrafts, that we understand that it could cause real problems in their business, real problems with cashflow, and other ramifications, that we understand it is really important,” she says.
The bank also chose not to immediately report the overcharging to the Australian Securities and Investments Commission, but to do so at a later date, which Carnell says also suggests the bank sees the overcharging as “a minor problem”.
“Wouldn’t you think, if you had been charging people double, or more, 33% interest, you would be so horrified that you would get in touch with them immediately, and immediately, after apologising profously, make sure they got their money back and a bit more for their pain and suffering? Isn’t that the way to deal with this?”
“That would be good customer service, that’s what you expect,” she adds. “I find it comes back to culture”.
Neil Slonim, an independent banking commentator and founder of TheBankDoctor.org, agrees that the focus should be on banks owning up to such errors and then doing what they can to remedy them.
“No business owner would want to be overcharged,” Slonim tells SmartCompany.
“But every business owner understands and accepts that sometimes organisations make mistakes. These things can and do happen, and in large organisations, they are going to happen from time to time.
“By the same token, it’s not unreasonable for small businesses to expect banks or other suppliers who make mistakes, to acknowledge the mistake and remedy it. And quickly.”
Slonim says, by nature, Australians are “generally very forgiving people” and “if people make honest mistakes, and admit and remedy them, we move on”. And in a world where social media and whistleblower protections are now more readily available, there’s no longer anywhere for banks to hide when mistakes are made.
“You can’t hide this kind of stuff,” he says.
Protections needed, but “let bankers be bankers”
Echoing sentiments shared earlier this week by the Council of Small Business of Australia’s Peter Strong and David Gandolfo from the Commercial and Asset Finance Brokers Association of Australia, Slonim is also concerned that a possible outcome from the royal commission could be further restrictions on SME lending that ultimately make it even harder for small businesses to get a loan.
“There’s a risk we could go too far here,” he says.
While conversations this week have focused on the role and expectations of the banks when conducting due diligence on borrowers and those providing guarantees for loans, Slonim says, ultimately, individuals who borrow money from banks must be responsible and accountable for repaying that money.
“I don’t believe it should be up to the banks to do due diligence for borrowers and guarantors,” he says.
“We need to let bankers be bankers, but have protections in place to make sure that if things don’t run properly, there are consequences.”
There’s also an important role for the regulators and the industry code of conduct, he says.
But at the end of the day, the last thing small businesses need is for bank finance to dry up.
“Small business owners need access to credit, and anything that inhibits or restricts that is not good for business,” he says.