Royal Commission hears glitch in CBA overdraft assessment went undetected for four years

20 March 2018

Royal Commission hears glitch in CBA overdraft assessment went undetected for four years

The Commonwealth Bank incorrectly assessed for overdrafts following a technical problem that was undetected for over four years, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry heard on Tuesday.

The attention of the Royal Commission moved from fraud and misconduct of bankers and brokers to errors and incompetence in the banking industry, where the Commonwealth Bank’s automated overdraft assessment system was under scrutiny.

Overdrafts allow a bank’s customer to take more money from their account than they actually have, creating a negative balance which the customer then pays back later with interest charged.

Unfortunately, a technical problem resulted in the rental expenses for customers being set to zero — Clive van Horen, Commonwealth Bank executive general manager of retail products explained: “The rental expense data … did not flow through to the serviceability decision and therefore we … clearly incorrectly assumed zero rent.”

Another problem that went undetected was that when a customer declared their living expenses, the automated assessment software effectively disregarded the declared amount and substituted the preset benchmark — the Household Expenditure Measure, previously considered by the Royal Commission.

According to Mr van Horen, “Both had the same outcome, which is that we underestimated or under-assessed the customers’ expenses”.