Big banks have been grilled at the financial services royal commission this week.

First up, Commonwealth Bank was questioned about a technical glitch that went undetected for more than four years.

Later in the week, ANZ was asked about processing errors that saw it charge customers the wrong amount of interest and fees on their home loans for several years.

Additionally, Westpac was called to account for its “unacceptable” car loan policies.

Commonwealth Bank says it has assessed hundreds of thousands of customers for overdrafts that occurred with their rental expenses set at zero.

In 2011, the bank automated its application assessing process, but the new system had two fundamental flaws in assessing whether customers could afford the interest payments on their overdrafts.

“The rental expense data that was input into the front end did not flow through to the serviceability decision and, therefore, we assumed zero, clearly incorrectly, assumed zero rent, obviously a mistake,” said Clive van Horen, CBA's executive general manager of retail products.

“Then there was a second error in the way that the living expense looked for a data field and it pulled the wrong data in.”

Instead of using a customer's declared expenses, the automated assessment went straight to the Household Expenditure Measure (HEM) – a lower figure.

“Policy is one thing, so our policy said we would take the higher of [the two values]. Practice, the reality, as per everything we've said here, we know there was an error, we did not take that into account,” Mr van Horen said.

“And that error went undetected for over four years, didn't it?” asked counsel assisting the commission Albert Dinelli.

“That's right,” Mr van Horen said.

The problems were blamed on coding errors.

They allowed some customers to take out money despite not being able to afford the overdrafts.

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

On Wednesday this week, ANZ revealed it had refunded $75 million due to technical glitches that meant some customers offset accounts were not linked to their home loans.

“You're the relevant bank executive, do you think it is providing financial services efficiently, honestly and fairly if the customer is charged the wrong interest rate?” Commissioner Hayne asked.

“I think if the customer is charged the wrong interest rate then that is not a good outcome for a customer,” ANZ head of home loan product, Sarah Mary Stubbings replied.

Processing errors on interest rates and home loans were first raised internally by the bank in 2011 and again in 2014, but the corporate regulator was not notified about the technical glitches until October 2017.

Also on Wednesday, Westpac was questioned about its lending practices in relation to car loans that were granted to people incapable of paying them back.

Westpac said it has tight policies that include not allowing certain Centrelink benefits to be approved as income for a loan.

Westpac's general manager of specialist finance, Phillip Godkin, told counsel assisting the commission Albert Dinelli that the way car dealers are remunerated is a conflict of interest.

He said that the more cars they sell, the higher their commission, and that car dealers are allowed to set the interest rates paid by customers — a process known as flex commissions.

Flex commissions are paid by lenders to car dealers but the dealer has the discretion to set the interest rate on the car loan.

“Is it right to say that one of the concerns about flex commissions is that the interest rate charged to the consumer is not related to their credit rating or risk of default but to what they can negotiate with the dealer?” Mr Dinelli asked.

“That's fair,” Mr Godkin said.

“Is it right to say that it provides an incentive for sales intermediaries to increase the price of a credit contract?”

“It can, yes.”

He admitted Westpac would lose money if it stopped providing flex commissions.

“The issue in this market in terms of the way that we compete is that it would be impossible to stop it unilaterally without stepping away from the market altogether,” Mr Godkin said.

Flex commissions are set to be banned by ASIC in November this year.

In the meantime, Westpac has refused ASIC’s request to stop financing add-on insurance policies.