ONE of Australia’s big four banks will refund millions to home loan customers after a 23-year glitch was discovered in its system.
Around 9,400 owner-occupiers with interest-only loans will be up for a massive $11 million refund from Westpac because of a “longstanding error” in the bank’s systems, according to ASIC.
And there could be much more to come with the bank yet to reveal remediation for investor customers with interest-only loans affected by the same system error.
The error spans a period from 1993 to August 2016 and saw interest-only home loans fail to switch automatically to principal and interest repayments at the end of a 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,” it said.
Westpac has to now refund the additional interest paid on when the loans were supposed to automatically move to principal and interest repayments and give customers an interest rate discount for the rest of their 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.”
Westpac chief executive consumer bank, George Frazis said the bank would begin contacting affected customers today.
“We want our customers to have confidence that if we get something wrong, we acknowledge it and we put it right,” he said.
“We apologise unreservedly for the error and have now automated the switching process to ensure it does not happen again. Importantly, customers don’t need to do anything. We are contacting customers proactively and will provide compensation to anyone who we believe has been financially disadvantaged.”
Mr Frazis confirmed all interest-only investor loans were also being looked into but added: “many investors prefer to continue their interest-only loan repayments for financial reasons, including positive tax implications”.
ASIC acting Chair Peter Kell said greater scrutiny into interest-only loans was seeing lenders improve how they provide those loans “including in lenders identifying system errors”.
He warned that all banks should review their systems to reduce the chance of such errors occurring.