The case studies revealed numerous cases where banks charged fees or interest in amounts larger than agreed because of what were called ‘processing’ or ‘administrative’ errors. Often the errors went undetected for some time. Often identification of who had been affected and what compensation should be paid took many months. Some of the events were examined in detail in the case studies dealt with in the Interim Report.[1]
No systems for processing the numbers of transactions or variety of arrangements offered by banks will ever operate perfectly. Mistakes in enterprises as large as a bank are inevitable. In the end it is a human endeavour. Three points made in the Interim Report should be repeated. As I said then, and repeat, they are simple but fundamental.[2]
First, entities should not offer to sell what they cannot deliver. And that is what has been done when an entity has offered interest rate or fee discounts but has not charged the proper rate or the proper fee because relevant accounts were not linked, or automated systems were not properly programmed to charge the right rate or fee.
Failing to charge the contractually stipulated rate or fee is evidently conduct that falls below community standards and expectations. Performing a contract according to its terms must be seen as a standard of behaviour that the community expects to be met.
Failing to charge the contractually stipulated rate or fee is also misconduct. It is a breach of duty or it is a breach of a recognised and widely adopted benchmark for conduct, or, most probably, it is both.
Further, failing to charge the correct rate or fee might also constitute a contravention of section 912A of the Corporations Act or section 47 of the NCCP Act. Those sections oblige a financial services licensee and a credit licensee respectively to do all things necessary to ensure that the services covered by their licences are provided efficiently, honestly and fairly. And not charging the right rate or the right fee may be, in at least many cases, not providing the relevant service ‘efficiently, honestly and fairly’. Regardless of whether failing to charge the right rate and right fee is a breach of section 912A or section 47, it is, on its face, a breach of contract.
Second, the entity that sells a product should have adequate systems in place before the first sale is made. Selling without knowing that what is sold can be delivered is, at best, careless of the interests of the customers to whom the product is sold. At worst, it is deceptive.
The third, and equally simple, observation to make is that, if an entity does not deliver what it has sold, the entity must remedy that default and the consequences of the default as soon as is reasonably practicable.
Once this is acknowledged, it is clear that the processing or administrative errors identified by banks called for much quicker responses than were frequently observed. One example is ANZ’s prolonged processes for identifying and then compensating customers affected by failures that were first identified in 2003, too many of which were still far from complete when the Commission took evidence on the subject in March 2018.
A fourth point should be made. Often, processing or administrative errors go undetected for as long as they do because communications from the bank to the customer do not alert the customer to the need to check what has been charged, or do not permit the customer to make that check. In all but the most exceptional cases, the bank’s communication will take the form it does on the assumed basis that it is accurately recording the consequences of the applicable arrangements with the customer. But if that is what the communication does convey, it may be that the communication is likely to mislead or deceive.
Banks, and other financial services entities, do not always recognise that the law relating to misleading and deceptive conduct does not depend upon intention. The relevant focus is upon the effect of the conduct in issue.
It follows that there may be occasions where so-called processing or administrative errors should be examined through the lens of the law relating to misleading and deceptive conduct. Doing that may cause entities to give better attention, before products are launched into the market, to whether their systems do support the product. Compensating customers who have not been given what was promised is very much a second‑best solution.
[1] See, eg, FSRC, Interim Report, vol 2, 74–82, 438–42.
[2] FSRC, Interim Report, vol 1, 66–7.