Westpac Fined After Vulnerable Customers Were Left Waiting for Help

Key Takeaways

• Federal Court Imposes Major Penalty: Westpac Banking Corporation was ordered to pay $18.6 million (AUD $26 million) after failing to properly respond to more than 200 customer hardship notices between 2017 and 2023.
• Failures Hit Customers in Crisis: Many affected customers were dealing with domestic abuse, illness, job loss, or broader financial distress. Some waited weeks beyond legal deadlines for responses, while others received none at all.
• Court Described Conduct as Grossly Negligent: Justice McEvoy found the failures stemmed from inadequate systems and operational breakdowns rather than deliberate misconduct, but still characterized the conduct as “grossly negligent.”
• Operational Failures Created Real-World Harm: Some customers suffered damaged credit records and had debts sold to third-party debt purchasers who actively pursued collection efforts.
• ASIC Is Escalating Pressure on Lenders: The case adds to a growing series of enforcement actions by the Australian Securities and Investments Commission targeting how banks and lenders handle hardship processes and borrower protections.

Deep Dive

This week, the Federal Court of Australia ordered Westpac Banking Corporation to pay a $18.6 million (AUD $26 million) civil penalty after the bank admitted it failed to properly respond to more than 200 hardship notices between 2017 and 2023.  The requests came through Westpac and its subsidiary brands, including St George Bank and Bank of Melbourne, and involved customers struggling to keep up with repayments on home loans, credit cards, personal loans, and car loans.

Justice McEvoy did not accuse the bank of deliberately ignoring vulnerable customers. In some ways, the judgment is more damaging because of that. The court found the failures stemmed from inadequate systems and operational breakdowns that had become embedded over years. The judge accepted the conduct was “grossly negligent.”

There is something especially bleak about a hardship process failing through bureaucracy rather than malice. Nobody storms into the office each morning determined to worsen the lives of financially distressed customers. The machinery simply stops working properly. Requests disappear into queues. Systems fail to escalate cases. Deadlines pass. Customers wait. Meanwhile interest accumulates, arrears grow, stress compounds, and the person on the other side of the process starts screening phone calls they can no longer emotionally afford to answer.

ASIC Deputy Chair Sarah Court put it more bluntly.

“Westpac failed the very customers who needed help when they needed it most,” she said in the regulator’s statement.

The bank had argued that a $7.1 million (AUD $10 million) penalty would be appropriate. Justice McEvoy rejected that outright, calling such a figure “little more than derisory in the circumstances.”  It is difficult to read that line without sensing a degree of judicial impatience. Australian regulators and courts have spent years untangling what happens when banks treat compliance obligations as operational inconveniences rather than obligations attached to real human beings. This case lands squarely inside that tradition.

Westpac also paid more than $1.2 million (AUD $1.7 million) in remediation to affected customers, including refunds, interest repayments, and compensation for non-financial harm.  The phrase “non-financial harm” does a lot of work there. It usually means stress. Anxiety. Humiliation. The particular exhaustion that comes from trying to explain to a large institution that your life has stopped functioning normally while the institution responds with another automated message informing you your request remains under review.

The legal issue itself is not complicated. Under Australia’s National Credit Code, lenders are required to respond when customers formally notify them that they cannot meet repayment obligations. If the lender refuses to vary the arrangement, it must explain why and inform the customer of their rights to escalate complaints through the Australian Financial Complaints Authority.  The broader obligation under the National Credit Act is even simpler to understand and much harder to operationalize at scale. Credit providers must ensure services are delivered “efficiently, honestly and fairly.”

Those three words become interesting once they collide with reality. Banks are very good at building systems that optimize for throughput. They are less comfortable building systems that recognize distress before it becomes measurable loss. Hardship operations sit awkwardly inside modern financial institutions because they force banks to deal with customers precisely at the moment those customers stop fitting neatly into operational models.

ASIC has been pushing aggressively into this territory. The regulator pointed to similar recent actions against National Australia Bank, Australia and New Zealand Banking Group, and non-bank lender Resimac over alleged or admitted failures tied to hardship handling and borrower treatment.  A pattern is emerging, and it is not really about paperwork. Regulators increasingly view hardship functions as a test of whether governance systems actually work under pressure. Plenty of organizations look compliant when customers are healthy, employed, and paying on time. The real examination starts when those assumptions collapse.

That is usually when the systems reveal what they were actually designed to do.

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