CBA to pay $7m penalty for overcharging interest
The Commonwealth Bank of Australia (CBA) has been ordered to pay a $7 million penalty by the Federal Court of Australia after the bank made false or misleading representations and engaged in misleading and deceptive conduct regarding overcharged interest.
According to Australian Securities and Investments Commission (ASIC) the penalty related to 12,119 occasions when CBA charged a rate of interest on business overdraft accounts substantially higher than what its customers had been advised.
CBA submitted that an appropriate penalty was $4 million to $5 million and ASIC submitted that an appropriate penalty was $7 million.
In reaching the decision, Justice Lee said CBA’s conduct was serious and that the number of false and misleading representations were significant and that conduct of this type and nature must be prevented.
Justice Lee also rejected the submission that CBA had acted expeditiously to remedy the effort and found the bank’s delay was particularly troubling given the relationship between a bank and its customers.
ASIC commissioner, Sean Hughes, said: “Financial services institutions need to have appropriate systems, governance and controls in place to ensure they deliver on promises made to their customers. When CBA failed to resolve this error after it was identified, customers were overcharged more than $2 million in interest.
“CBA’s delay in remediating customers following this error was an aggravating factor in the court’s determination of the penalty. When financial institutions discover overcharging, they must take immediate action to remediate impacted consumers.
“As recognised by Justice Lee, CBA made important admissions as to its many contraventions of the law. CBA is now making investments in its systems as a matter of priority. All financial services institutions should make similar commitments to rebuild trust in our financial system and to avoid further failures.”
The case followed from a Royal Commission case study and ASIC alleged, and the bank admitted, that from 1 December, 2014, to 31 March, 2018, that 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 annum);
- Sent periodic account statements to customers referencing the rate at which interest rate was being charged (in most cases, 16% per annum); and
- Due to a systems error, charged more than 1,510 customers a different, higher interest rate on their overdraft accounts (in most cases approximately 34% per annum).
Recommended for you
ASIC’s enforcement action is having an active start to the new financial year, banning a former Queensland financial adviser for 10 years in relation to fees for no service conduct.
ASIC has confirmed the industry funding levy for the 2024–25 financial year, and how much licensees can expect to pay.
Australian licensees are expected to make greater use of custom model portfolios for their clients, according to State Street Investment Management, following in the footsteps of US peers.
Adviser Ratings has argued that it’s time for more advisers to utilise digital engagement tools available to them as a disconnect grows between consumers seeking advice from finfluencers and from professionals.
