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20-063MR ASIC commences proceedings against CBA over the AgriAdvantage Plus Package – Royal Commission case study
ASIC has commenced proceedings in the Federal Court against Commonwealth Bank of Australia (CBA) for alleged breaches of the ASIC Act and Corporations Act for failures of their AgriAdvantage Plus Package (AA+ Package).
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 alleges 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.
ASIC contends 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.
ASIC alleges 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 will be seeking a total civil penalty up to $5 million subject to the conduct as alleged being found or admitted.
The proceeding will be listed for directions on a date to be determined by the Court.
CBA reported issues with the AgriAdvantage Plus Package in 2014 and ASIC then engaged with CBA in relation to the customer remediation process (15-298MR).
CBA's conduct was the subject of a case study by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry – see Vols 1 & 2 of the interim report.
ASIC's action against CBA falls within ASIC's Wealth Management Major Financial Institutions Portfolio. The Portfolio focuses on the financial services conduct of Australia's largest financial institutions (NAB, Westpac, CBA, ANZ and AMP) with respect to credit and retail lending, financial advice, fees for no service, superannuation trustees, insurance, unfair contract terms and other licensee obligations, and other conduct arising from the Financial Services Royal Commission.
The First Case Management Hearing which was scheduled for 26 March 2020 has been vacated.
The Court ordered that the matter be listed for hearing on 4 June 2020 at 10.15am.
The Court also ordered the parties to complete a number of steps towards the hearing, including the filing of a Statement of Agreed Facts by 9 April 2020.