The Federal Court has ordered Commonwealth Bank of Australia (ASX: CBA) to pay a $7 million fine for misleading and deceptive conduct.
As The Motley Fool reported in December, the Australian Securities and Investments Commission (ASIC) had taken the bank to court for overcharging interest on thousands of customers’ overdraft facilities.
Specifically the customers were told they would be charged 16% per annum, but CBA actually slugged them an eye-watering 34%.
This allegedly occurred over more than 6 years from December 2011.
CommBank did not defend the allegations of misleading and deceptive conduct and making misleading representations. The court found the bank liable in February.
CBA’s conduct was presented as a case study during the banking Royal Commission in 2018.
The bank’s shares were up 0.51% on Wednesday, trading at $86.47 when the ASX closed.
CommBank took too long to fix the problem
While CommBank did not defend itself against the accusations, it did fight the size of the fine. Its lawyers debated in court that the financial giant should be penalised somewhere between $4 to $5 million.
ASIC had sought $7 million, and the justice ultimately sided with that suggestion.
According to earlier ASIC submissions, CommBank attempted to manually fix the error after a 2013 complaint. But this wasn’t successful and overdraft clients were charged more than double the correct interest for 5 more years, until March 2018.
In setting the fine, Justice Michael Lee rejected CommBank’s argument that it had acted promptly to reverse the error.
“When CBA failed to resolve this error after it was identified, customers were overcharged more than $2 million in interest,” said ASIC commissioner Sean Hughes.
“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.”
The $7 million penalty was specifically for offences CBA admitted between 1 December 2014 to 31 March 2018.
More than 12,119 instances of overcharging took place in that period, affecting 1,510 customers.
A CBA spokesperson told The Motley Fool that “failures of this sort are unacceptable”.
“We apologise to those customers who at the time were overcharged fees,” said the spokesperson.
“The problems that caused the error have been addressed and 2,269 customers have been sent refunds. The combined total of refunds sent to customers was $3.74 million, and the remediation program has now concluded.”
Hughes said CommBank is currently “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 will return to court at the end of this month to decide how a publication order would be implemented and who would pay for ASIC’s legal costs.