Westpac will repay $11 million to 9400 mortgage holders due to a systems error affecting some loans going back 25 years.
The bank failed to switch the owner-occupiers, who had interest-only home loans, to principal and interest mortgages at the end of their interest-only period.
The error meant customers did not start paying down the principal on their loans at the time agreed with the bank and, as a consequence, paid more in interest and had less time to pay off the principal.
It affected some interest-only home loans held by owner-occupiers with Westpac going back to 1993 - though it mostly affects those whose interest-only period expired between 2009 and 2016.
St George, Bank of Melbourne, BankSA and RAMS customers are not affected.
Westpac has agreed to refund the additional interest paid by customers and discount the interest rate for the remaining term of the loan so that customers pay no more interest over the life of the loan than they would have if the error had not occurred.
Peter Kell, acting chairman of the Australian Securities and Investments Commission (ASIC), said banks must ensure proper systems processes and oversight.
"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," Mr Kell said.
ASIC and Westpac are continuing to discuss an appropriate remediation program for property investors with interest-only mortgages affected by the same system error.
Accounting firm Deloitte has been engaged to assess the bank's approach.
Westpac's chief executive, consumer bank, George Frazis said the bank had identified the issue and worked with ASIC on its response.
"Our approach is to ensure no owner-occupier customer pays more interest over the originally intended loan term as a result of our mistake," he said.
"We apologise unreservedly for the error and have now automated the switching process to ensure it does not happen again."
Westpac has started contacting affected owner-occupier customers. The remediation program for all customers is expected to take about 12 months to complete.This article was first published by https://www.smh.com.au/Author: John Collett