Westpac forced to refund 40,000 customers
BIG bank Westpac is refunding tens of thousands of customers who have been hit with incorrect charges after a major home loans error.
Manual processing errors left Westpac customers stuck on interest-only loans instead of transferring them across to principal and interest repayments once their interest-only period expired.
In recent weeks more customers have been receiving letters from the bank outlining the giant error.
It has impacted:
- 40,000 customers who paid excess interest and they will be remediated and;
- 30,000 customers who were ahead of their repayments but had no financial impact and will not be remediated.
About 70 per cent of customers have now been remediated.
It also hit customers at some of the bank's subsidiary lenders including BankSA, Bank of Melbourne and St George customers.
The problem was first publicly identified by the bank in 2017 and has resulted in the lender working since then to rectify the problem.
In recent years the big four banks' compensation bill for dudding customers has run into billions of dollars.
For Westpac customers left out of pocket, they will paid a direct reimbursement into their home loan account or in some cases they will be sent a cheque.
However for the period they were left on interest-only time was frozen and the customer failed to pay off any of the debt owing.
This could result in them asking the bank for an extension on their loan if it is required.
The error predominantly impacted loans with an interest-only period that expired between 2009 and 2016.
Westpac's general manager home ownership Will Ranken said it's been a huge task to rectify the problems.
"Following identifying the issue we have conducted a full review of the matter," he said.
"Our approach is to ensure no customers pay more interest over the original loan term as a result of this error."
Switching customers from interest-only to principal and interest will now be done automatically through the bank's computer systems.
A customer on a $300,000 30-year mortgage who started their interest-only period in 2009 for five years and was not moved to principal and interest after the period ended and remained on it until 2019 would be owed $2154 in interest.
They would also be paid a lump sum of $6267 in future interest repayments.
This is based on an average interest rate of 4.16 per cent.
Consumer group Choice's spokeswoman Erin Turner said it was "disappointing" so many Westpac customers had been impacted by the mistake.
"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," she 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."
She urged borrowers to regularly check their loans.
In recent times Westpac has also come under fire over its use of the Household Expenditure Measure (HEM) which they used to assess a borrower's living expenses before issuing a loan.
Westpac says impacted customers can contact their Specialist Bankers on 1300 132 925 between 8am to 8pm Monday to Friday, 9am to 5.30pm Saturday (AEST).