The Commonwealth Bank of Australia has revealed it repaid about $2.5 million to customers through debt writeoffs after a system breakdown saw the bank mistakenly offer them overdraft facilities, the banking royal commission has heard.
Under CBA’s overdraft approval system between 2011 and 2015 a software glitch understated the living expenses of many customers, bank executive Clive van Horen said on Tuesday.
The error resulted in rental costs being filled in at zero rather than their actual amount, he said.
The errors came as CBA was boosting its overdraft business which ballooned from 120,000 customers in 2011 to 550,000 three years later.
Mr van Horen said about 10,500 clients, or 1.8 per cent of the total, were affected.
Of those affected, 9400 mistakenly received overdrafts and 1100 mistakenly got credit limit increases.
The bank became aware of the breaches in September 2015 and rectified the problem 18 days later. It reported the problem to the corporate watchdog ASIC in November of that year.
Under questioning from counsel assisting Albert Dinelli, Mr van Horen said the bank had been advised the situation did not represent a breach of the Corporations Act, and so there was no requirement to report within 10 days.
The overdrafts were for relatively small amounts with 90 per cent being under $1000 and 75 per cent being under $500.
Internal control systems which check the validity of lending decisions by sampling failed to identify the problem. It emerged when a new manager reviewed overdraft operations.
A committee looking into the bank’s data control in October 2016, which included chief executive Ian Narev and risk chief David Cohen, found that “data management continues to be underfunded and lacks enforcing sponsorship”.
It was experiencing a “general decline” with committees on the subject “failing to get quorums”.
The ANZ, meanwhile, also made unsolicited offers of overdraft facilities of between $500 and $1000 to 331,000 customers in late 2014 and early 2015, executive Heang Forbes told the royal commission.
Of these, 2992 were taken up. The offers breached regulations by not investigating customer finances or if they needed an overdraft. The practice stopped in February 2015.
This round of hearings, held at the Commonwealth Law Courts in Melbourne, will continue until Friday this week.