The Commonwealth Bank of Australia had to write off around $2.5 million in personal overdraft balances after nearly 11,000 people where given loans they couldn’t properly service because the banks own serviceability calculator was faulty.
Corporate regulator ASIC hit the bank with four fines, totalling $180,000, because CBA breached responsible lending laws as a result.
The bank self-reported to ASIC after discovering the problem involving its calculator for loans granted between July 2011 and September 2015.
The serviceability calculator substituted $0 in housing expenses, and living expenses based on a benchmark, which in some instances was substantially less than the living expenses declared by the consumer, ASIC says.
That led to an over-estimation of a borrower’s capacity to service the overdraft facility.
The problem meant that 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.
CBA said it identified a system error during an internal review. The problem with the calculator meant “the Bank did not consider all expense information during the serviceability assessment. Our review determined this affected approximately 11,000 customers, fewer than 2% of our personal overdraft customers.”
Retail products and strategy executive GM Clive van Horen said the bank had nearly completed remediating affected customers.
“We sincerely apologise to our customers and we regret that this error occurred,” he said.
“When we make a mistake that impacts our customers we will put it right to ensure our customers are not adversely affected.”
CBA said it advised customers that any outstanding debt associated with this error is being written off, which totals around $2.5 million, and that their credit ratings have not been impacted as a result of the mistake.
ASIC deputy chairman Peter Kell said his organisation was concerned that CBA’s problem 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.
“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,” he said.
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