ASIC sues Westpac over financial hardship failures

The lawsuit comes while CEO Peter King has repeatedly told customers he wants to hear from them as soon as they feel they are struggling with repayments so the bank can help.

Australia’s corporate watchdog has sued Westpac, accusing the country’s second-largest lender of breaking credit laws when it failed to respond to vulnerable customers’ financial hardship notices, adding to their distress over several years.

Hundreds of customers had told Westpac they were unable to meet their repayments and outlined their circumstances, including their inability to work, the impact of serious medical conditions and in some cases the stress added by carer responsibilities.

Westpac’s systems were not robust enough to ensure it fulfilled its legal obligation of responding to its customers to inform them whether alternative repayment arrangements could be made within 21 days, the lawsuit claims.

Instead, the Australian Securities & Investments Commission claims online notices submitted by 448 customers were not sent to the “Customer Assist” team for processing, and in at least 229 occasions, Westpac did not respond within the legal timeframe to notices filed over several years, due to its deficient processes.

In some cases, stressed customers had “endured debt collection activities by Westpac” while waiting for the bank to respond.

The lawsuit will be an embarrassment for Westpac boss Peter King, who in the past year – with the sharpest increase in interest rates in decades – has repeatedly said he wants to hear from customers as soon as they feel they are struggling with repayments so that the bank can help them.

In the statement of claim, the regulator highlighted that Westpac “continues to acknowledge the deficiencies with its systems and processes concerning online hardship notices during and following the relevant period arising from, among other things, complex multiple legacy technology platforms and underinvestment in modern simplified technology infrastructure.”

It adds that an internal audit report as recent as June 2023 identified several shortcomings.

Among other things, the audit report notes that “online customer hardship requests are not always sent to collections systems for Customer Assist to action; resulting in either a delay in the outcome provided to customers, or no outcome being provided.”

ASIC deputy chair Sarah Court. Picture: NCA NewsWire / Ian Currie

Westpac said it acknowledged the proceedings and its chief information officer Scott Collary apologised to customers.

“This error meant we didn’t provide some of our customers with the help they needed,” Mr Collary said. “For this, we are deeply sorry.

“While we have assisted some of these customers in subsequent contact, it is not good enough that we missed their initial attempt to get in touch.”

ASIC deputy chair Sarah Court said the regulator had sued Westpac “to highlight the importance of lenders responding to hardship notices within the required time frame to reduce harm to their customers”.

Last month, the regulator took the unusual step of writing to the CEOs of 30 large lenders – including Westpac – urging them to fulfil their obligations to support their customers as they battle higher interest rates and cost-of-living pressures.

The sharpest rise in interest rates and inflation in decades is pushing many Australians into financial hardship, with a record 1.5 million at risk of mortgage stress and a 28 per cent increase in calls to the National Debt Hotline this year.

“Submitting a hardship notice, which results in a change to the credit contract, can be a lifeline for people experiencing challenging financial circumstances,” Ms Court said.

But instead of helping its customers experiencing stress, “Westpac’s failures to respond to these notices compounded their customers’ difficult financial circumstances,” she added.

ASIC alleges that Westpac failed to meet its legal obligations to certain customers who were experiencing financial hardship from September 4, 2017 until March 20, 2022. It is also accusing the lender of “failing to act efficiently, honestly and fairly” when it came to responding to its customers’ hardship notices.

On 21 occasions, Westpac sold the customer’s account to debt collectors, and on three occasions, the bank started proceedings to recover possession of its customer’s mortgaged property, the statement of claim says.

Under the National Credit Code, Westpac was required to tell the customers that filed hardship notices if it didn’t agree to change the terms of its loans or if it needed more information to make its decision.

But the regulator says Westpac “did not do enough to investigate and rectify the systems issues plaguing its online hardship notification process”.

Westpac has been at the top of the regulator’s court lists since 2021, as it has sued the lender several times for various alleged contraventions.

Last year, the Federal Court ordered the bank to pay $113m for a litany of “failures” across its banking, wealth management, insurance and superannuation businesses, including charging fees to dead customers. The regulator filed court proceedings in the Federal Court on Monday seeking a financial penalty for Westpac and “adverse publicity” orders from the court that would spell out the bank’s alleged failings.

Westpac first self-reported the “incident” to the regulator in March 2022. The bank had received about 630,000 hardship applications over the period in question, and had co-operated with the regulator’s investigation, it said.

“Since we uncovered this issue, we’ve contacted these customers and completed a remediation program including refunds of fees and interest, debt waivers and payments for non-financial loss, totalling approximately $900,000,” Mr Collary said in the statement.

“We have strengthened our processes and are upgrading our online hardship applications,” he added.