Westpac interest debacle reminds us to check our home loans
The Big Four bank is refunding $11 million to affected customers.
File this under "ouch": Westpac is refunding $11 million in interest to 9,400 customers after over-charging them for loans over almost a quarter of a century. An additional 3,600 customers will receive a discount on their interest rate to make up for the error.
The Australian Securities and Investments Commission (ASIC) revealed the details of the refund yesterday, after an investigation into problems with interest rate calculations for customers who were due to switch from interest-only loans onto principal and interest loans. "The remediation follows an error in Westpac's systems which meant that these interest-only home loans were not automatically switched to principal and interest repayments at the end of the contracted interest-only period," ASIC noted.
The loans involved ran between 1993 and August 2016. Westpac is contacting all the customers involved to notify them of the error.
ASIC has been paying increased attention to interest-only loans, and it's likely that other banks will also identify errors.
"'Greater regulatory scrutiny of interest-only loans has led to improvements in how lenders are providing these loans, including in lenders identifying system errors," ASIC acting chair Peter Kell noted. "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."
While it's good to see banks working to identify these problems, the Westpac issue is also a timely reminder to consumers to monitor repayments on their home loans. It's all too easy to have a "set and forget" mentality where you make repayments every month but don't check on interest rates and your total balance. If you do take out an interest-only loan, make sure that the calculations are correct when it transitions to principal and interest.
Angus Kidman's Findings column looks at new developments and research that help you save money, make wise decisions and enjoy your life more. It appears regularly on finder.com.au.