A programming error has cost the Commonwealth Bank $180,000 in fines over breaches of responsible lending laws and a writeoff of $2.5 million in overdraft balances.
The error came to light through an internal review conducted by the bank. It was traced to the automated serviceability calculator that assesses certain applications for personal overdrafts.
As a result of this mistake, the bank failed to take into account declared housing and living expenses of some consumers between July 2011 and September 2015.
CBA reported the error to the Australian Securities and Investment Commission after surveillance by the corporate regulator.
{loadposition sam08}The serviceability calculator estimated the housing expenses for some clients to be $0, and calculated living expenses based on an amount that was much less than that declared by the consumers in question. This led to overestimation of the consumers' capacity to service the overdraft.
An ASIC media release said, "As a result of the error, CBA approved 9577 consumers for overdrafts which would have otherwise been declined and 1152 consumers for higher overdraft limits than would have otherwise been provided".
Due to this, CBA has written off approximately $2.5 million in personal overdraft balances.
ASIC deputy chairman Peter Kell was quoted as saying: "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 input into systems."