Australian bank Westpac (ASX: WBC) will pay a $12 million penalty for selling consumer credit card and loan debt to debt purchasers with incorrect interest rates after the Federal Court determined the contraventions to be “serious, to say the least”.
It marks another win for the Australian Securities and Investment Commission (ASIC) which launched an “unprecedented” six legal actions against the bank in November last year, of which the debt onsale case was just one.
As admitted to by Westpac, the big four bank onsold customer debt to debt purchasers with interest rates higher than it was contractually allowed to charge on at least part of the debts.
This resulted in more than 16,000 customers, who were likely to be in financial distress, being overcharged interest. In return for the onsale of these bad debts, Westpac received a total of $19 million.
“Some of these ultimately bankrupted customers had, of course, concessional interest rates that ought to have been applied to their accounts,” Federal Court Justice Jonathan Beach said in handing down his judgment today.
“Further, adverse credit ratings reports were also filed with credit ratings agencies by these debt purchasers…this would have been likely to impact the ability of customers to obtain credit at all, or to obtain credit on favourable terms.
“Undoubtedly, the customers impacted by Westpac’s conduct were likely to be customers who could least afford to be overcharged with interest and who faced financial hardship. Clearly, the extended consequences of Westpac contraventions were serious to say the least”.
In coming to the $12 million penalty figure, Justice Beach acknowledged that the failures by Westpac were brought about by system errors and that the errors did not directly involve the senior management or officers of Westpac.
“It appears that the contraventions were not brought about by deliberate or reckless conduct on the part of Westpac and they were not commercially motivated,” Justice Beach said.
“Indeed I’m not able to conclude that Westpac in any way profited from its wrongdoing.”
To date, Westpac has remediated 16,535 impacted customers to the tune of $17.72 million and has put in place various measures to avoid repeating the conduct in the future.
“The $12 million penalty reflects the seriousness and impact of the contraventions on a large number of vulnerable consumers,” Justice Beach said.
“In my view, overall, the $12 million penalty satisfies the objectives of both specific and general deterrence.”
This matter is the second of six legal actions brought by the corporate watchdog against Westpac, and follows the handing down of a $20 million penalty to the bank’s subsidiary BT Funds Management for incorrectly charging commission payments to members of one of its superannuation funds.
The Court found BT Funds had charged superannuation members insurance premiums that included commission payments, despite the banning of these commissions under the Future of Financial Advice reforms in 2013. BT Funds continued to charge the commissions until 2020.
The bank is still facing four more matters including allegations it charged 11,0000 dead customers for services that were not provided, that it distributed duplicate insurance policies to more than 7,000 customers, that it charged fees for financial advice to customers without proper disclosure, and that it did not have the appropriate processes to manage accounts held in the names of deregistered companies.
The bank has admitted the allegations in each of the six proceedings and will remediate approximately $80 million to customers.
Shares in WBC are up 1.07 per cent to $24.62 per share at 10.29am AEST.
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