Westpac will provide 13,000 owner-occupiers who have interest-only home loans with an interest refund, an interest rate discount, or both. The refunds amount to $11m for 9,400 of those customers.
The remediation follows an error in Westpac's systems which meant that these interest-only home loans were not automatically switched to principal and interest repayments at the end of the contracted interest-only period.
As a result, affected customers did not start paying any principal on their loans at the time agreed with the bank, and now have less time to repay the principal amount of their loans. These customers would also have paid more in interest.
To remediate the affected customers, Westpac will now:
- Refund the additional interest paid from when the loan was contracted to convert to principal and interest repayments
- Discount the interest rate for the remaining term of the loan.
This remediation has been designed so that customers pay no more interest over the life of the loan than they would have if the system error had not occurred.
ASIC will monitor Westpac's consumer remediation program to ensure it is meeting consumer requirements.
ASIC Acting Chair Peter Kell
said banks must ensure proper systems processes and oversight, particularly when it affected important assets such as consumers' homes:
'Greater regulatory scrutiny of interest-only loans has led to improvements in how lenders are providing these loans, including in lenders identifying system errors.'
'All banks should be reviewing their systems to ensure that they minimise the chance of any such errors occurring, and that any risks to customers are identified early. If past errors are identified, remediation needs to be timely, transparent and effective.'
Westpac is contacting all affected customers.
ASIC and Westpac are continuing to discuss an appropriate remediation program for investor customers with interest-only loans affected by the same system error.
This has been a long-standing error and has affected some interest-only home loans for owner occupiers who had an interest-only loan with Westpac between 1993 and August 2016.