A money-laundering scandal has claimed the Commonwealth Bank’s chief executive, even as another, less publicised rip-off blew a $10 million hole in the bank’s profits.
CBA’s board appeared to buckle under the weight of public criticism on Monday by announcing CEO Ian Narev would step down by June next year, despite giving him their “full support” last week.
On the same day the board tapped Mr Narev on the shoulder, corporate regulator ASIC reported that CBA had agreed to refund about $10 million in credit card insurance it wrongly charged students and the unemployed – with an average refund of $154 including interest.
CBA told the market it “self-reported the issue” to ASIC in 2015, and that the insurance was “not intentionally sold to customers who were not eligible”.
This scandal captured far fewer headlines, as $10 million is nothing compared with the almost $1 trillion in fines the bank could incur if held liable for money-laundering breaches. But some say it illustrates the “crisis” in the sector.
ASIC said the bank charged 65,000 customers who were either studying or jobless for ‘CreditCard Plus’ insurance between 2011 and 2015, despite them probably being ineligible to claim payouts for job loss and injuries preventing them from working.
The Finance Sector Union, which represents many of CBA’s staff, said the credit card rip-off was proof Mr Narev should resign immediately in order to bring an end to the “crisis in banking” – a pushy sales culture.
“Ian Narev should go now so the CBA can get on with reforming its culture, valuing its staff and delivering good services once again to its customers,” FSU national secretary Julia Agrisano told The New Daily.
“Ian Narev not retiring until some time in 2018 isn’t going to see the culture that we need to see at CBA right now.”
The credit card rip-off was eerily similar to the PPI scandal in the UK, where British banks were caught selling millions of pounds worth of insurance to customers who were self-employed or had pre-existing medical conditions, making them ineligible for coverage.
Patrick McConnell, a banking expert who advised firms in the US, Europe and Australia for 30 years, said both CBA scandals – money laundering and credit cards – proved customers were “caught in the middle” of a fight for revenue.
“We have four huge retail banks all operating on the margins – new mortgages, new fees for this, new fees for that,” Dr McConnell told The New Daily.
“The only way they can grow is by fighting each other on the margins, and that pressure is starting to show.”
What may have forced the CBA board to axe Mr Narev was the extraordinary intervention of the Reserve Bank governor.
Governor Philip Lowe slammed the banking sector on Friday for betraying public trust by putting customer service in the “back seat to sales”.
ASIC boss Greg Medcraft tightened the screws further by telling a separate parliamentary hearing that the money-laundering allegations were a “problem of culture”.
Thomas Clarke, an internationally recognised expert on corporate governance, said the criticism from the RBA and ASIC was “the final straw”.
“The board was really bowing to the inevitable,” he told The New Daily.
Dr Clarke predicted that CBA was in for a “very long period of contrition and hopefully of change: cultural, management and organisational change”.
“This has been a defining moment, not just for CBA, but for the banks in Australia. If they can’t get their act together, there inevitably will be a royal commission, and reforms and restructuring will be imposed on them,” he said.
“Whatever faults were in the software, the real problem appears to be, as identified by the Reserve Bank, that banks in Australia are so focused on revenue and profits they seem to have lost sight of their fundamental mission to serve the public and the economy.”