Australia's financial watchdog has launched civil penalty proceedings in the Federal Court against Westpac alleging they failed to respond to customers' hardship notices.
The Australian Securities and Investments Commission claimed that between 2015 and 2022, a flaw in the bank's online hardship notice process saw 229 customers not get a response to their hardship notice within 21 days – allegedly breaching the National Credit Code.
The customers had tried to tell Westpac they were suffering financial hardship, including inability to work, medical conditions and carer responsibilities.
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ASIC alleged that some customers had faced debt collection processes from Westpac while waiting for a response.
"Submitting a hardship notice, which results in a change to the credit contract, can be a lifeline for people experiencing challenging financial circumstances," ASIC deputy chair Sarah Court said.
"ASIC has taken this action to highlight the importance of lenders responding to hardship notices within the required timeframe to reduce harm to their customers.
"Westpac's failures to respond to these notices compounded their customers' difficult financial circumstances."
ASIC also alleges that Westpac breached the National Credit Act by failing to act efficiently, honestly and fairly when it came to responding to its customers' hardship notices.
The watchdog claims Westpac did not do enough to investigate and rectify the systems issues plaguing its online hardship notification process.
ASIC is seeking declarations, pecuniary penalties and adverse publicity orders against Westpac from the Court.
The date for the first case management hearing is yet to be scheduled.
Westpac said it acknowledged the proceedings from ASIC.
"This error meant we didn't provide some of our customers with the help they needed. For this, we are deeply sorry," Westpac Group chief information officer Scott Collary 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 said since Westpac discovered the issue, they had contacted the customers and completed a remediation program including refunds, debt waivers, and payments for non-financial loss, totaling about $900,000.
"We have strengthened our processes and are upgrading our online hardship applications," Collary said.
He said Westpac had self-reported the incident to ASIC and had cooperated with their investigation.