Yahoo Finance 40,000 Westpac home loan customers to be repaid millions
A major Australian bank has had to stump up millions of dollars after it was found to have incorrectly charged 40,000 home loan customers.
Westpac home loan customers have been receiving letters explaining how they will be reimbursed after being mistakenly charged extra interest.
The issue was first identified in 2017, and around 70 per cent of customers have already been reimbursed.
At the time, Westpac said the refunds would total $11 million, and explained that the issue was that owner occupier mortgage customers with an interest-only repayment period had not been switched to principal and interest repayments at the end of the interest-only period.
That meant customers weren’t paying down the principal, only the interest.
Customers with an interest-only period that expired between 2009 and 2016 were primarily affected by the error.
Westpac had already booked $281 million in remediation costs in its full-year results in November last year, but admitted the cost of remediation could exceed this.
Westpac home loan customers don’t need to do anything
In a statement to Yahoo Finance, Westpac general manager of home ownership Will Ranken said customers affected aren’t required to do anything to be reimbursed.
Affected borrowers will be sent a cheque or be reimbursed through their mortgages.
However, the major bank has also set up a support hotline for those affected.
Customers can contact bankers on 1300 132 925 8am-8pm Monday to Friday and 9am-5.30pm Saturday (AEST).
“Westpac continually reviews its products and services for customers,” Ranken said.
“As part of this, we identified a mortgage processing error which led to customers continuing to make interest only repayments on their mortgage instead of being switched to principal and interest repayments at the end of their interest only period. Westpac issued an external media release in late 2017 outlining this matter.
“Customers who were not ahead of repayments paid excess interest when their home loan did not switch to principal and interest at the correct time had to be remediated.
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“Many of these customers have already been refunded and we are working hard to complete this remediation program.”
Customers who need extra support will be contacted by the bank, with Ranken explaining that the goal is for no customer to pay more interest due to the error.
The bank has also introduced an automated switching process to prevent customers becoming stuck in interest-only repayment plans for longer than intended.
Westpac’s home loan woes
Westpac has been in hot water in recent years over its approach to processing home loans.
The bank agreed in September 2018 to pay a $35 million penalty after the corporate regulator, ASIC, claimed the bank’s automated home loan assessment system was in breach of responsible lending rules.
ASIC claimed Westpac had issued more than 10,000 home loans that may not have been appropriate.
Westpac was using a system called the Household Expenditure Measure (HEM) to make judgments on borrowers capabilities, rather than individually evaluating customers’ living expense. The HEM system is now considered to return a low estimate.
"This outcome, and ASIC's actions in relation to responsible lending, reinforce that all lenders must obtain information from individual borrowers about their financial situation to ensure that they can properly assess the ability of the customer to repay the loan," ASIC chairman James Shipton said at the time.
"Lenders must then verify the information to ensure that it is true, and then assess whether the loan is unsuitable for the borrower."
However, the Federal Court has refused to approve the negotiated penalty, with Justice Nye Perram arguing neither ASIC or Westpac was able to identify if the home loans were actually in breach of the law.
Westpac is also the subject of a class action involving potentially thousands of borrowers.
The class action, brought by Maurice Blackburn, relates to the HEM system with the litigator estimating thousands of home loans were affected.
“Westpac is required to comply with strict obligations which are specifically designed to protect consumers from irresponsible lending and the risk of financial hardship,” Maurice Blackburn principal lawyer Ben Slade said in February this year.
“This case will seek to prove that Westpac failed to comply with these obligations and that this failure caused substantial losses for many consumers.”
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