Westpac forced to repay 40,000 customers after home loans error

Westpac has been forced to repay 40,000 customers after a processing error meant they were over charged tens of millions of dollars.

Westpac has been forced to repay tens of millions of dollars after incorrectly charging 40,000 customers.

The major bank blamed manual processing errors, which left a large portion of borrowers on interest-only loans instead of being transferred to principal and interest once the interest-only period had expired.

Customers have been receiving letters in recent weeks detailing how 40,000 will be remediated for paying excess interest. A further 30,000 who were ahead of their mortgage repayments suffered no financial impact and will not be remediated, according to The Daily Telegraph.

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About 70 per cent of customers have now been remediated with those linked to some of the bank’s subsidiaries impacted, including BankSA, Bank of Melbourne and St George.

The issue was first identified in 2017 after a random review of its products and services, Westpac told news.com.au.

“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,” a bank spokesperson said in a statement.

“Westpac issued an external media release in late 2017 outlining this matter.”

Westpac chief executive Brian Hartzer says the bank constantly reviews its services. Picture: AAP Image/Joel Carrett

The affected customers will either be paid back through their mortgages or be sent a cheque, but for the period they were unwittingly left on interest-only repayments a customer wasn’t able to chip away at their mortgage.

This could leave the door open for some to apply for an extension on their loan.

Customers affected were mainly those with an interest-only period that expired between 2009 and 2016.

“After identifying this issue, we have conducted a full review of the matter,” the bank’s spokesperson said.

As a result, the bank will now switch customers from interest-only to principal and interest automatically through Westpac’s computer system.

A 30-year mortgage for $300,000 paying interest-only for five years from 2009 that was not switched to principal and interest after the end of the initial period through to 2019 would be owed $2154 in interest.

The customer would also be paid a lump sum of $6267 in future interest repayments, based on an average interest rate of 4.16 per cent.

Consumer advocate Choice told The Daily Telegraph it was “disappointing” so many customers had been dragged into the major banking error.

“People who have chosen an interest-only loan can often find themselves in a tough position, especially if the property they’ve purchased hasn’t increased in value,” spokeswoman Erin Turner said.

“This is a reminder to all borrowers that banking systems aren’t always as slick as we expect.

“Whether it’s because of a mistake or deliberate action that costs you more, you can’t trust that your bank will always act in your interest.”

Westpac says impacted customers can contact their specialist bankers on 1300 132 925 8am-8pm Monday to Friday and 9am-5.30pm Saturday (AEST).

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