The Federal Court has ordered the Commonwealth Bank of Australia (CBA) to pay a $150,000 penalty after the Court found the bank breached the responsible lending provisions of the National Consumer Credit Protection Act 2009 (National Credit Act).
The penalty is for failures to take account of a notification by a customer (Mr Harris) that he was a problem gambler and to take reasonable steps to verify his financial situation before offering and approving a credit card limit increase.
The National Credit Act provides consumer protections to ensure credit providers make reasonable inquiries about a borrower’s financial situation before assessing whether a loan contract is suitable for them.
ASIC’s investigation related to a credit limit increase provided by CBA to Mr Harris on 20 January 2017, which increased the credit limit on his CBA credit card from $27,100 to $35,100. CBA offered and then made the credit limit increase despite Mr Harris informing CBA in October 2016 that he was a problem gambler and did not wish to increase his credit limit until he was able to get his gambling under control.
In the decision of 23 October 2020, Justice Murphy declared that CBA contravened the National Credit Act prior to offering and approving Mr Harris’ credit card limit increase by failing to:
- make reasonable inquiries as to whether Mr Harris still considered himself to be a problem gambler;
- take reasonable steps to verify whether Mr Harris was still using his CBA credit card to pay for gambling expenses, and the extent to which he was doing so and had done so since he informed CBA of the problem gambling;
- take reasonable steps to verify Mr Harris’ financial situation; and
- assess the credit card limit increase as unsuitable to meet Mr Harris’ requirements or his objective to cease being a problem gambler before accepting any credit limit increase.
ASIC alleged and CBA admitted that this misconduct was the result of inadequate systems and processes in respect of problem gambler notifications. Because of these inadequacies, CBA failed to take account of Mr Harris’ notification that he was a problem gambler and to take reasonable steps to verify his financial situation before offering and approving a credit card limit increase.
As recognised by Justice Murphy in his judgment, CBA has taken corrective measures to finalise a hardship arrangement with Mr Harris and has introduced a series of measures intended to address issues associated with problem gambling as well as broader measures to assist customers to manage their credit card expenditure.
In arriving at the penalty to be imposed, the Court took into account CBA’s cooperation with ASIC and admissions of contravention of the law. CBA has also been ordered to pay ASIC’s costs.
CBA’s conduct with respect to credit cards and credit card limit increases was the subject of a case study by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry Interim Report Volume 2 (p101).
Since CBA’s conduct, the law has changed. A credit card contract or credit limit increase must be assessed as unsuitable if it is likely that the consumer would be unable to repay the credit limit within a period prescribed by ASIC. ASIC has prescribed a three year period (18-257MR). Additionally, unsolicited credit limit increase offers, like those Mr Harris received, are now prohibited.
In 2018 ASIC set out our expectations that credit card providers do more to proactively assist consumers struggling with problem credit card debt. At that time ASIC found that more than one in six consumers were struggling with credit card debt (18-201MR).