Case note: overcharged interest penalty

In Australian Securities and Investments Commission v Commonwealth Bank of Australia [2021] FCA 423 the Federal Court of Australia ordered the Commonwealth Bank of Australia (CBA) to pay a $7 million penalty after finding that CBA made false or misleading representations and engaged in misleading and deceptive conduct on 12,119 occasions during the period 1 December 2014 to 31 March 2018.

These findings related to CBA charging a rate of interest on business overdraft accounts substantially higher than what its customers had been advised.

ASIC alleged, and CBA admitted, that CBA 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).

On each occasion that CBA contravened sections 12DA(1) and 12DB(1)(g) of the ASIC Act and consequently CBA breached its general obligation as a financial service licensee to comply with financial services laws in contravention of s 912A(1)(c) of the Corporations Act 2001 (Cth).

In deciding the penalty amount Justice Lee made the following conclusions:

“First, the overcharging originally occurred not as a result of any sort of deliberate decision to procure the payment of moneys to which the CBA was not entitled, but, rather, due to an unfortunate systems error.
Secondly, when the problems first became apparent, and for a very considerable period thereafter, persons within the CBA were content to not take steps to notify customers that had been affected and, notwithstanding that they were aware the CBA was holding onto money to which it was not entitled, were content to let the matter rest. The matter was not further addressed until a customer had actually taken the step of making a complaint.
Thirdly, even when the complaint was raised, the reaction of the CBA remained tardy and wholly inappropriate, until the matter had been escalated by a further complaint to the FOS, at which time finally someone with a degree of seniority became involved.
Fourthly, after a further period of time elapsed, a remediation programme was finally put in place.

…. I regard this conduct, which I will describe as the CBA delay, as both serious and reflecting poorly upon those that were aware the bank was holding onto money to which it was not entitled.

there does seem to me to be a high degree of artificiality in reconciling the notion that a penalty of $7 million (which represents profit earned in a little over six hours of the bank’s operations during the course of the year when the remediation programme was finally completed) would operate in a way to deter repetition of this conduct by an organisation as large as the CBA and by others who might be tempted to contravene…. I think any lower figure would insufficiently have regard to the principles of deterrence, both specific and general…

The contravening conduct is serious without being egregious. It is possible to imagine far worse cases. However, I specifically reject the submission made by the CBA that it acted expeditiously in relation to the rectification of the problem once it was identified. As I have said, the delay reflects very poorly on the CBA. At the end of the day, one must remember that a large number of customers were misled as to the interest charged on their accounts on 12,119 occasions, and the false and misleading representations were significant with the result that customers were overcharged interest totalling $2,238,554.94. This does call for a response that goes well beyond a sum which could be conceptualised as a mere cost of doing business.”

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David Jacobson

Author: David Jacobson
Principal, Bright Corporate Law
About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.

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