Executing on yet another Royal Commission legal referral the Australian Securities and Investments Commission (ASIC) has initiated Federal Court proceedings against the Commonwealth Bank (CBA) for failures around its so-called AgriAdvance Plus Package (AA+).
The proceedings allege breaches of the ASIC Act and the Corporations Act on the part of CBA with the regulator allegiance that from May 2005 to December 2015, CBA sold customers the AA+ Package, which entitled customers, in exchange for the payment of package fees, to benefits in the form of fee waivers and interest rate discounts, and bonus interest on savings, on 22 CBA products.
ASIC said it would be alleging that, contrary to the terms of the AA+ Package, CBA harmed customers by not providing certain benefits to customers and, as a result, customers were overcharged fees and interest on loans and fees, and underpaid interest on savings. CBA also overcharged AA+ Package fees to certain customers.
ASIC's case is that the causes of CBA's failures included the highly manual nature of CBA's systems by which the AA+ Package benefits were applied, as well as, CBA having no systems or processes in place to check whether customers were receiving benefits.
Announcing the legal action, ASIC said it would be contending in court that a total of 8,659 customers were harmed by CBA's conduct on 131,542 occasions, in circumstances where CBA benefited from a total of $8,087,276 in incorrectly charged fees and interest on loans, and underpaid interest on savings.
The ASIC announcement said the regulator would be alleging that from May 2005 to 31 December 2015 (Relevant Period):
- On 7,077 occasions, CBA represented to 13,063 customers that it had adequate systems and processes in place to ensure customers received, and would continue to receive, the benefits in accordance with the terms and conditions; and on 18,679 occasions, CBA accepted payments for the provision of the AA+ Package Benefits when there were reasonable grounds for believing CBA would not be able to supply the AA+ Package Benefits within a reasonable time. ASIC alleges that from 16 March 2014 to 31 December 2015 (Penalty Period) being conduct within the six-year limitation period, CBA engaged in conduct that contravened provisions of the ASIC Act and Corporations Act. Specifically:
- On 123 occasions, CBA contravened s12DB(1)(e) and (g) of the ASIC Act, by making misleading representations, and s12DA(1) of the ASIC Act by engaging in misleading or deceptive conduct by representing to each customer that it had adequate systems and processes in place to ensure customers received, and would continue to receive, the benefits in accordance with the terms and conditions.
- On 3,905 occasions, CBA accepted payments for the provision of the AA+ Package Benefits when there were reasonable grounds for believing that CBA would not be able to supply the AA+ Package Benefits, in contravention of s12DI(3) of the ASIC Act.
- CBA breached its obligation to do all things necessary to ensure that the financial services covered by its financial services licence were provided efficiently, honestly and fairly, in contravention of s912A(1)(a) of the Corporations Act.CBA also breached its general obligation as a financial service licensee to comply with financial services laws pursuant to s912A(1)(c) of the Corporations Act on 4,028 occasions within the limitation period, being each occasion that it contravened ss12DA(1), 12DB(1)(e) and (g) and 12DI(3).
ASIC said it would be seeking a total civil penalty up to $5 million subject to the conduct as alleged being found or admitted.