​Programming error leads to AU$2.5m write-off for Commonwealth Bank

Commonwealth Bank of Australia has written off AU$2.5 million and paid four infringement notices totalling AU$180,000 as a result of breaching responsible lending laws when providing personal overdraft facilities.
Written by Asha Barbaschow, Contributor

The Commonwealth Bank of Australia (CBA) has admitted that a programming error has resulted in the bank writing off AU$2.5 million in loan balances.

The programming error was found after the bank conducted an internal review which identified its automated serviceability calculator -- used to assess certain applications for personal overdrafts -- failed to take into consideration the declared housing and living expenses of some consumers from July 2011 through to September 2015.

According to the Australian Securities and Investments Commission (ASIC), as a result of the programming error, CBA approved 9,577 consumers for overdrafts which that have otherwise been declined; and 1,152 more consumers for higher overdraft limits than would have otherwise been provided.

CBA told ZDNet the customers affected by the error account for fewer than two percent of its personal overdraft customers.

In handing CBA four infringement notices totalling AU$180,000, ASIC said CBA's serviceability calculator error resulted in some consumers approved for a personal overdraft, or an increased limit on their personal overdraft, even though their declared expenses were greater than their declared income.

ASIC said in a statement it was concerned that CBA's conduct 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," ASIC Deputy Chairman Peter Kell said.

The regulator also said that CBA self-reported the breaches to ASIC, and has co-operated with ASIC's investigation and the bank confirmed it has nearly completed remediating affected customers.

"We sincerely apologise to our customers and we regret that this error occurred," Clive van Horen, CBA executive general manager, retail products and strategy said.

"When we make a mistake that impacts our customers we will put it right to ensure our customers are not adversely affected.

"We continue to review our systems and processes to ensure we are delivering the best possible customer experience."

For the 2016 financial year, CBA reported statutory net profit after tax of AU$9.2 billion, up 3 percent year on year; operating income increased 5 percent to AU$24.6 billion; and revenue from ordinary activities came in at AU$44.4 billion, down 2 percent from the previous corresponding period.

Total IT expenses for the bank came in at AU$1.5 billion for the full year with software amortisation increasing by 23 percent to AU$379 million, while application maintenance cost went up 19 percent to AU$511 million. The largest IT expense for the full year was the desktop line item that increased by 30 percent year on year to AU$143 million.

At the time, the bank attributed the 15 percent year on year increase in IT expenses to higher software amortisation, increased investment spend, volume-driven maintenance, and data processing costs.

During the full year CBA also said it saw an increase in uptake of self-service and digital capabilities, with total digital transactions with the bank increasing to 309 million, from 225 million since December 2013.

Updated 4.05 pm AEST 14 September 2016: Added commentary from the Commonwealth Bank of Australia.

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