Can you really trust a bank?

Australia’s banking sector is once again under scrutiny after Westpac was ordered by the Federal Court to pay a $26 million penalty for failing to properly respond to customers experiencing financial hardship.

The case, brought by the Australian Securities and Investments Commission (ASIC), centred on hundreds of hardship requests that were either ignored, delayed, or mishandled over several years. The ruling sends a strong message to lenders across Australia: when borrowers ask for help, banks must act quickly and fairly.

What Happened?

According to ASIC, more than 200 customers lodged hardship notices with Westpac and its related brands between 2017 and 2023. Many of these borrowers were dealing with serious financial stress caused by illness, unemployment, domestic violence, natural disasters, or family breakdowns.

Under Australian credit laws, lenders are required to respond to hardship applications within 21 days. However, the court found Westpac failed to meet these obligations because of deficiencies in its online hardship processing systems.

Justice Timothy McEvoy described the bank’s conduct as “grossly negligent,” noting that some customers were subjected to debt collection activity while still waiting for assistance.

Why This Matters for Australian Borrowers

For many Australians, hardship assistance can provide critical breathing room during difficult times. Options may include:

• Reduced loan repayments
• Temporary repayment pauses
• Loan restructures
• Extended loan terms
• Interest relief arrangements

When lenders fail to process hardship requests correctly, borrowers can fall deeper into financial distress. Missed responses may lead to defaults, damaged credit files, or unnecessary legal action.

ASIC Deputy Chair Sarah Court said the failures compounded financial stress for vulnerable customers and highlighted the importance of banks responding within legal timeframes.

What Borrowers Should Know About Hardship Rights

If you are struggling to meet repayments on a mortgage, personal loan, credit card, or car loan in Australia, you have legal protections under the National Credit Code.

You generally have the right to:

• Request financial hardship assistance
• Receive a response within required timeframes
• Be treated fairly and respectfully
• Escalate complaints to the Australian Financial Complaints Authority (AFCA) if necessary

Importantly, asking for hardship support early can often prevent larger financial problems later.

A Wake, Up Call for the Banking Industry

The $26 million penalty is one of the largest recent fines relating to hardship handling failures in Australia’s banking sector. The court’s decision reflects growing regulatory pressure on banks to improve customer care systems, especially during periods of high cost, of, living pressure and rising interest rates.

Westpac stated it had self, reported the issues to ASIC in 2022 and has since upgraded its hardship systems and remediation processes. The bank also apologised to affected customers and confirmed compensation programs had been implemented.

Final Thoughts

Financial hardship can happen to anyone. Whether caused by job loss, illness, separation, or rising living costs, borrowers deserve timely support from their lenders.

The Westpac case serves as an important reminder that banks have both legal and ethical responsibilities when customers reach out for help. For Australian consumers, it also reinforces the importance of understanding your rights and seeking assistance as early as possible.

At Loanly Planet Finance, I believe informed borrowers make stronger financial decisions. If you are facing repayment stress, speaking with a qualified finance professional early may help you explore options before financial pressure escalates.

Sources:
ASIC media releases, Federal Court reporting, ABC News, AFR and national Australian financial media coverage.