CBA faces ASIC suit over interest rate coding error

CBA is set to face civil proceedings over a coding error exposed by the banking royal commission that led to over 2200 customers being overcharged interest to the tune of $2.9 million.

The Australian Securities and Investments Commission (ASIC) said it had filed civil penalty proceedings in the Federal Court against CBA “for charging a rate of interest on business overdraft accounts substantially higher than what its customers were advised.”

The overcharging occurred between 2011 and 2018, and saw more than 2200 customers charged an interest rate of up to 34 percent instead of up to 16 percent.

The interest rates varied depending on the overdraft, according to ASIC’s court filings. [pdf]

“The total overcharged interest exceeded $2.9 million,” ASIC said.

“The average quantum of overcharging in respect of the affected customers was approximately $1476.90 in relation to SBOs and $3965.30 in relation to BODs, per affected customer.

“The highest known amount overcharged on an affected customers’ SBO was $17,522.34.”

CBA has so far compensated $3.74 million to the customers impacted in this case via a remediation program.

ASIC alleged in its concise statement that “a coding error meant that the interest and fees for certain SBO [simple business overdraft] and BOD [business overdraft] facilities were sourced from two software systems, referred to as SAP (being ‘internal’ pricing) and SPARR (being ‘external’ pricing).”

“As a result of the coding error, affected customers were charged both the SAP sourced rate and the SPARR sourced rate,” ASIC alleged.

“This resulted in the affected customer being charged interest at a rate significantly higher than the interest rate provided for by the relevant terms and conditions.”

ASIC further alleged that CBA attempted to manually fix the overcharging error after a complaint in 2013, but that the manual fixes “were unsuccessful, and customers continued to be overcharged”.

ASIC accused CBA of conduct that contravened financial services laws and said it is “seeking declarations, pecuniary penalties and other orders against CBA.”

A case management hearing is yet to be scheduled by the Federal Court.