By now, you\u2019d have heard of the preposterous tale of an Australian bank, that egregiously approved an unlimited overdraft to a Malaysian student in Australia, which resulted in her accessing an amount of\u00a0A$4.6 million (RM13.7 million at the time of writing) over the course of nine months.<\/p>\n
Here\u2019s the back story if you\u2019ve missed out on the details: Christine Jiaxin Lee, 21, a Malaysian born student living in Australia for the past five years, opened a savings account with Westpac when she was 18 years old in 2012.<\/p>\n
Due to a glitch on Westpac\u2019s system, Lee was granted an unlimited overdraft attached to her account. Though she did not immediately spend the money, she started overdrawing a total of A$4,653,333.02 between July 2014 and April 2015.<\/p>\n
According to Lee\u2019s lawyer, about A$1 million was spent on handbags, luxury items and some transfers, while A$3.3 million remains unknown.<\/p>\n
So, has Lee committed a crime?<\/p>\n
First things first, let\u2019s understand what an overdraft is.<\/p>\n
An overdraft is a credit facility meant for short-term borrowing or emergencies. It comes with your savings or current account. Essentially it allows you to borrow a certain amount of fund from the bank through withdrawal from your account, debit and\/or ATM card. Unlike a personal loan which grants you a specified amount in full, an overdraft lets you take only what you need (though a limit is usually set) and you\u2019re charged based on the drawn amount only.<\/p>\n
Authorised overdraft has a preapproved limit, which both the account holder and the bank mutually agreed upon, and comes with an interest rate. An unauthorised overdraft is when the account holder overspends on their bank account without any advance agreement with the bank where instead of disallowing the transaction, the bank lets the customer\u2019s account enter into an overdraft state. Understandably, the interest rate on unauthorised overdraft is higher than authorised overdraft.<\/p>\n
In Lee\u2019s case, the authorised overdraft that was mistakenly approved by Westpac has no limit.<\/p>\n
However, it still comes with a hefty interest rate. Westpac\u2019s typically charges 12.09% per annum on their personal overdraft, and this rate is variable, which means it changes from time to time.<\/p>\n
What this means is, the Westpac\u2019s glitch was not a windfall for Lee. The bank didn\u2019t suddenly award her with cash from nowhere. She still needs to repay the amount to the bank, as with any overdraft approved by banks around the world.<\/p>\n
Here\u2019s a simplified calculation of how much interest Lee would have incurred:<\/p>\n\n