Commonwealth Bank of Australia (CBA) has paid four infringement notices totalling $180,000 in relation to breaches of responsible lending laws when providing personal overdraft facilities.
CBA reported this matter to ASIC following an ASIC surveillance. CBA conducted an internal review which identified a programming error in the automated serviceability calculator used to assess certain applications for personal overdrafts.
As a result of the error, between July 2011 and September 2015, CBA failed to take into consideration the declared housing and living expenses of some consumers.
Instead, CBA's serviceability calculator substituted $0 housing expenses, and living expenses based on a benchmark which in some instances was substantially less than the living expenses declared by the consumer. As a result, this led to an over-estimation of the consumer's capacity to service the overdraft facility.
CBA informed ASIC that between July 2011 and September 2015, as a result of the error, CBA approved:
- 9,577 consumers for overdrafts which would have otherwise been declined; and
- 1,152 consumers for higher overdraft limits than would have otherwise been provided.
Some consumers were approved for a personal overdraft, or an increased limit on their personal overdraft, even though their declared expenses were greater than their declared income.
ASIC was concerned that this conduct breached responsible lending laws and that affected consumers would have been unable to comply, or could only comply with substantial hardship, with their obligation to repay their personal overdraft on demand.
CBA has informed ASIC that it will write off a total of approximately $2.5 million in personal overdraft balances.
ASIC Deputy Chairman Peter Kell said, 'Credit licensees should continuously monitor their internal processes to ensure compliance with the law. This is especially the case with automated decision-making systems where ongoing monitoring is needed to ensure that information is correctly inputted into systems.'
Background
The responsible lending obligations that prohibit lenders from entering into credit contracts which are unsuitable for the consumer are found in the National Consumer Credit Protection Act 2009 (Cth). The laws aim to ensure that credit contracts are not unsuitable for consumers (see s133(1)), and consumers are likely able to afford the credit contract (see s133(2)).
ASIC issued four infringement notices in August 2016 totalling $180,000 for the breaches outlined above.
CBA self-reported the breaches to ASIC, and has co-operated with ASIC's investigation.
The payment of an infringement notice is not an admission of guilt in respect of the alleged contravention. ASIC can issue an infringement notice where it has reasonable grounds to believe a person has committed particular contraventions of the National Credit Act.