ASIC sues Westpac for alleged failure on hardship notices

Westpac could face millions of dollars in penalties for failing to respond to customers’ hardship notices quickly enough if the Federal Court rules in favour of the corporate regulator.

The Australian Securities and Investments Commission (ASIC) will on Tuesday say that it has commenced civil penalty proceedings against the bank in the Federal Court, alleging that 229 Westpac customers from 2015 to 2022 did not receive a response to their hardship notice within the required timeframe.

Westpac chief information officer Scott Collary said the bank had contacted customers since the issue was identified and completed a remediation program.Credit: Natalie Boog

ASIC deputy chair Sarah Court said the regulator had taken court action to highlight the importance of lenders reducing harm to their customers by responding to hardship notices within the timeframe required by law.

“Submitting a hardship notice, which results in a change to the credit contract, can be a lifeline for people experiencing challenging financial circumstances,” she said. “Westpac’s failures to respond to these notices compounded their customers’ difficult financial circumstances.”

It comes as some indicators of financial stress on households are starting to pick up, with banks warning the full impact of rate rises is yet to flow through, although arrears and delinquencies among the major banks remain below historical averages. In August, Westpac said the proportion of customers more than 90 days behind on their repayments rose by 7 basis points to 0.8 per cent of its loan book.

Last week, the regulator published an open letter to 30 large lenders urging them to step up their support for customers experiencing financial hardship amid a 29 per cent increase in calls to the National Debt Hotline compared to the same time last year.

ASIC said many customers allegedly affected by Westpac’s failure to respond to hardship notices also disclosed difficult circumstances and vulnerabilities, including their inability to work, the impacts of serious medical conditions or carer responsibilities.

“In some cases, customers endured debt collection activities by Westpac while waiting for the bank to respond to their hardship notices,” the regulator said.

Under section 72(4) of the National Credit Code, a lender has 21 days to notify the customers if it does not agree to change the contract or if it requires further information to make its decision.

ASIC has alleged that Westpac breached the code by failing to respond within that timeframe and by failing to act efficiently, honestly and fairly when it came to responding to its customers’ hardship notices.

In its concise statement filed to the Federal Court on Monday, ASIC alleged the issues came about as a result of a Westpac system failure and/or IT error.

Westpac group chief information officer Scott Collary has acknowledged the civil penalty proceedings and said the technology failure meant the bank did not provide some of its customers with the help they needed.

“For this, we are deeply sorry,” he said. “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.”

Collary added since uncovering the issue, the bank had contacted affected customers and completed a remediation program including refunds of fees and interest, debt waivers and payments for non-financial loss, totalling about $900,000.

“We have strengthened our processes and are upgrading our online hardship applications,” Collary said.

ASIC has also alleged that Westpac did not do enough to investigate and rectify the systems issues plaguing its online hardship notification process and is seeking declarations, pecuniary penalties and adverse publicity orders against the bank from the court.

It’s not the first time ASIC has acted against a credit provider for failure to comply with the relevant section of the National Credit Code. In February, the Federal Court penalised ClearLoans $6 million for financial hardship misconduct.

Westpac said it self-reported to ASIC when the incident was identified, had co-operated with its investigation and was considering the matters raised by ASIC.

The bank said it received about 630,000 applications for hardship assistance over the period from 2015 to 2022.

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