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Commonwealth Bank (ASX: CBA) and Westpac (ASX: WBC) are in hot water today after two regulatory bodies took action over alleged misconduct.
The Australian Securities and Investment Commission (ASIC) commenced proceedings in the Federal Court against CBA today alleging the bank overcharged interest to business overdraft account holders.
ASIC says the rate of interest charged to these account holders was "substantially" higher than what it initially advised to customers.
In total, the watchdog claims more than $2.9 million in interest was overcharged.
The alleged misconduct is believed to have started back in December 2011 and was ongoing until March 2018.
According to ASIC, CBA provided customers with terms and conditions for certain credit facilities stating an interest rate of 16 per cent per annum was to be charged.
Further, ASIC says CBA sent periodic account statements to customers referencing the rate at which interest was being charged, but due to a systems error more than 2,200 customers were allegedly charged a different, higher interest rate on their overdraft accounts.
In most cases, this alleged rate of inflated interest was approximately 34 per cent.
"ASIC alleges that CBA attempted to manually fix the overcharging error after a complaint was made to the bank in 2013," ASIC said.
"The manual fixes were unsuccessful, and customers continued to be overcharged."
As such, ASIC alleges CBA breached financial services laws on 12,119 occasions. The watchdog is seeking declarations, pecuniary penalties and other orders against CBA.
CBA has acknowledged the proceedings brought by ASIC, saying it hs addressed the problems that caused the error.
"ASIC investigated this matter following its consideration as a case study at the Financial Services Royal Commission," CBA said.
"The problems that caused the error have been addressed and 2,269 customers have been sent refunds.
"The combined total of refunds sent to customers was $3.74 million, and the remediation process has now concluded."
APRA questions Westpac's liquidity standards
Meanwhile, the Australian Prudential Regulation Authority (APRA) has taken action against Westpac over alleged breaches of liquidity standards.
The breaches, which were identified during 2019 and 2020, relate to the incorrect treatment of specific funding and loan products for the purposes of calculating the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR).
APRA says these breaches have been rectified and do not raise concerns about the overall soundness of Westpac's current liquidity position. However, the watchdog says they demonstrate "weakness in risk management and oversight, risk control frameworks and risk culture".
"Under APRA's liquidity requirements, banks must maintain a sound liquidity risk management framework, ensuring accurate calculation of the LCR and NSFR1," says APRA deputy chair John Lonsdale.
"While Westpac's LCR and NSFR are comfortably above regulatory minimums, APRA's actions reflect how seriously we view breaches of our prudential requirements."
"In taking these actions, our objective is to obtain assurance that Westpac is complying with APRA's liquidity requirements. It also sends a message to the wider banking industry that breaches of prudential standards are not acceptable, and APRA will respond as appropriate, including by imposing penalties,"
As such, APRA will now require comprehensive reviews by independent third parties of Westpac's compliance with APRA's liquidity reporting requirements and the remediation of its control framework for liquidity risk management.
In addition, until the findings are addressed to APRA's satisfaction, the watchdog will require Westpac to apply a 10 per cent add-on to the net cash outflow component of its LCR calculation.
Westpac says it will enter into an enforceable undertaking over risk governance remediation and will work constructively with APRA.
"We acknowledge the findings of APRA's review and accept the need to work faster to address our shortcomings," Westpac CEO Peter King said.
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