CBA, Westpac, ANZ, Bendigo and Adelaide Bank overcharged low-income earners for accounts

Australia’s biggest banks face legal action and will have to repay $28m for systemically charged high fees to those customers who could least afford it, an ASIC investigation has revealed.

The Australian Securities & Investments Commissioner Alan Kirkland said the findings put all banks “on notice” to lift their game. Picture: Jane Dempster.

Commonwealth Bank, Westpac, Bendigo and Adelaide Bank, and ANZ charged 150,000 customers – many of whom were relying on welfare payments – more than $6m for high-fee accounts when they were eligible for low-charge equivalents, an investigation by the corporate regulator has found.

A sweeping report by the Australian Securities & Investments Commission will prompt banks to refund $28m to vulnerable customers, including those placed in high-fee accounts and people hit with overdrawn and dishonour fees.

The findings throw into question pledges by the banks to improve their standing with customers after the scathing 2018 Hayne royal commission into the sector.

They are another blow to the sector, which was lambasted by ASIC last month when the regulator said at least three banks were failing to properly respond to borrowers in hardship, as higher interest rates caused more financial distress.

The corporate regulator is considering taking at least three lenders to court over possible breaches of the National Credit Code.

In the report, to be released on Monday, ASIC said it collected and analysed high and low-fee account data from participating banks for customers living in Indigenous pilot locations and those receiving ABSTUDY between November 2022 and March 2023.

ABSTUDY is a program that provides payments to Aboriginal and Torres Strait Islander students in high school or higher education.

The regulator determined from the data that in 150,000 cases customers were wrongly placed into high-fee accounts.

The participating banks had processes for identifying low-income customers who were likely to be eligible for a low-fee account, ASIC said.

But ASIC said the banks’ existing processes for promoting eligibility for low-fee accounts were ineffective in migrating those customers to the cheaper alternatives. Successful migration rates were as low as 0.5 per cent.

The report found most participating banks required customers to provide a concession card in order to gain access to a low-fee account, even though the banks knew these customers were in receipt of government concession payments.

ASIC said banks would now provide annual savings of nearly $11m to eligible customers who will be migrated to low-fee accounts.

Commissioner Alan Kirkland said the findings put all banks “on notice” to lift their game for low-income and vulnerable customers.

Alan Kirkland said it was still considering the cases.

“It was disappointing to see the number of people who are living on low incomes and are trapped in high-fee bank accounts – particularly (given) the way this issue had been highlighted before the banking royal commission,” Mr Kirkland said.

“In total, the banks have agreed to communicate with over two million customers about moving to low-fee accounts as a result of the project, so it has had quite a broad reach.”

Mr Kirkland said ASIC would follow up to see whether banks not included in its investigation would also refund customers that had been overcharged.

The report indicates ASIC’s patience with the sector is waning.

“We expect them (all banks) to be looking at the findings, the recommendations of the report and reviewing their practices in similar ways,” Mr Kirkland said. “… We’ve been really clear with banks that we expect to see continued improvements in customer protection.”

Mr Kirkland highlighted the case of a Commonwealth Bank customer on the disability support pension who was charged more than $1000 in fees for assisted withdrawals and banking at the post office.

A Commonwealth Bank customer on the disability support pension who was charged more than $1000 in fees for assisted withdrawals. Picture: NCA NewsWire/Bianca De Marchi

Separately, a Bendigo Bank customer on a carer’s payment was charged more than $1700 in account keeping fees.

“The people covered by this report are very much living from fortnight to fortnight off their payments … that’s why these fees can have such a terrible impact on them and why they should be moved to low-fee accounts,” Mr Kirkland said.

A spokesman for Bendigo and Adelaide Bank admitted there was room for improvement.

“The bank has made progress in ensuring customer choice, improving processes, and refunding First Nations customers where appropriate, but accepts there is more work to be done as we continue to take additional steps and find new ways to improve customer outcomes,” he said.

The royal commission revealed wrongdoing included banks charging dead people fees and levying charges for advice that was never received.

Mr Kirkland said while the investigation focused on four banks and their subsidiaries, the recommendations were applicable to all financial institutions.