Westpac has announced that it will refund approximately $11 million to thousands of customers after a “system error” that affected home loans as far back as 1993.
Over 13,000 owner-occupier borrowers will receive interest refunds that amount to $11 million on their interest-only (IO) home loans.
Due to an error in the major bank’s systems, some IO home loans were not automatically switched to principal and interest (P&I) loans following the end of the contracted IO period. The loans that were affected included those from 1993 to August 2016.
As a result of the error, IO customers had less time to pay the principal on their loan and paid more in interest.
Westpac will now reimburse customers for the additional interest paid on their home loan and will discount the interest rate on the remaining term of the borrower’s 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.
Further, Westpac and ASIC are also arranging an appropriate remediation program for affected interest-only investment loans.
Westpac’s remediation program will be monitored by ASIC, with its acting chairman, Peter Kell, urging banks to adequately monitor their systems to protect important customer assets.
“Greater regulatory scrutiny of interest-only loans has led to improvements in how lenders are providing these loans, including in lenders identifying system errors,” Mr Kell said.
“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 has contacted affected customers. However, concerned borrowers with questions about the remediation program are being asked to contact the bank.