Westpac faces court over alleged failures in processing hardship notices

The financial services regulator has put forward that the major bank breached its obligations under the National Credit Code. Under the Code, a lender has 21 days to notify the customer if it does not agree to change the contract or if it requires further information to make its decision.

The regulator alleged that between 2 October 2015 and 20 March 2022, Westpac’s hardship notice process failed, resulting in 229 Westpac Group customers (covering St.George, Bank of Melbourne, BankSA, and Westpac) not receiving a response to their hardship notice within the necessary 21-day time frame.

Under s 72(4) of the National Credit Code, where a credit provider does not agree to change a credit contract in response to a customer’s notice, a credit provider must give the customer a notice advising them of this, the reasons they have not agreed, and the consumer’s right to have any complaint regarding the credit provider’s decision considered by AFCA.

According to the filing by ASIC to the Federal Court, there were several cases where Westpac Group customers endured debt collection activities even while they were waiting for the bank to respond to their hardship notices.

In the filing, the regulator stated that “at least six customers had assets (vehicles) and property seized after submitting their online hardship notice, which includes one of three customers against whom Westpac commenced court proceedings” to recover the mortgaged property.

ASIC claimed that at least 29 affected customers became bankrupt, or entered a debt agreement, after submitting their online hardship notice. However, the regulator added that Westpac has since made “some effort to remediate these customers”.

In the court filing, the regulator revealed hardship assistance was being sought by borrowers for a range of reasons, including redundancies, COVID-19 lockdowns and isolation as well as divorce and relationship breakdowns (resulting in a single remuneration needing to service loans taken on with dual incomes).

ASIC deputy chair Sarah Court stated: “Submitting a hardship notice, which results in a change to the credit contract, can be a lifeline for people experiencing challenging financial circumstances.

“ASIC has taken this action to highlight the importance of lenders responding to hardship notices within the required time frame to reduce harm to their customers. Westpac’s failures to respond to these notices compounded their customers’ difficult financial circumstances.”

In an ASX release yesterday morning (5 September), Westpac recognised the proceedings commenced by ASIC in the Federal Court, which it said related to a “technology failure in which ASIC alleges 229 applications for hardship assistance” were not assessed within 21 days.

Westpac chief information officer Scott Collary said the major bank was “deeply sorry” for the technology error that meant “we didn’t provide some of our customers with the help they needed”.

He added: “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.

“Since we uncovered this issue, we’ve contacted these customers and completed a remediation program including refunds of fees and interest, debt waivers and payments for non-financial loss, totalling approximately $900,000.

“We have strengthened our processes and are upgrading our online hardship applications.”

The regulator said it was ASIC’s second action against a credit provider for failure to comply with s 72(4) of the National Credit Code after measures against ClearLoans earlier this year resulted in a $6 million penalty for financial hardship misconduct.

Brokers paramount to ensure clients receive hardship assistance

The proceedings come after the Mortgage & Finance Association of Australia (MFAA) held a webinar last week (1 September) where it emphasised the importance of brokers in helping their clients receive hardship assistance.

Speaking at the webinar, both banking lawyer Elise Ivory, a partner at law firm Dentons, and Michael Blyth, executive director of policy and advocacy at the Australian Retail Credit Association (ARCA), implored brokers to encourage their customers to enter into hardship arrangements before missing payments and falling into arrears.

Mr Blyth said: “It will be the best thing for their credit report if they can get the hardship arrangement upfront before having that history of missed payments. Get them to talk to their lender as soon as possible.”

Ms Ivory added: “It is very emotive and there’ll be customers who don’t want to admit that they’re having problems.

“The people on the other end of the hardship line with the lenders, this is what they do all day, they’re not judging anyone, they’re not making any assumptions, they’re just there saying how can we help?”

[Related: Brokers hold key position in assisting borrowers in hardship]