The Australian Securities and Investments Commission (ASIC) has launched six court cases against Westpac for alleged widespread compliance failures that have affected thousands of deceased consumers and the loved ones they left behind. Attwood Marshall Lawyers Commercial Litigation Associate, Georgia Taylor, discusses compliance breaches, consumer harm, the consequences, and rights of the consumer.
Background
Westpac has admitted it broke the law and agreed to pay penalties totalling $113 million after the corporate regulator (ASIC) launched six court cases against the bank dealing with separate regulatory breaches. Westpac has agreed to pay the penalties and has cooperated with ASIC to come to this agreement; however, these orders will need to be approved by the Federal Court.
Over the course of a decade, Westpac allegedly charged more than 11,000 deceased customers more than $10 million for financial advice services that were not provided due to the fact their customers were deceased, according to ASIC.
During their investigations, ASIC also discovered Westpac had duplicated insurance policies to over 7,000 customers, causing them to pay for two (or more) insurance policies. There is obviously no need for consumers to pay for duplicate policies nor had the consumers consented to these additional services. The investigation also revealed the bank had been charging higher interest rates on customer debts than they were contractually allowed to and were continuing to charge fees on deregistered company accounts.
The bank will now be required to pay back $80 million to tens of thousands of affected customers due to its alleged breaches. Westpac has also agreed to pay fines of more than $100 million for numerous regulatory failures.
At the core of Westpac’s bad behaviour is the fact that the bank had a issues across their compliance processes, causing significant financial harm to their customers.
Conduct, breaches, and consumer harm
Australia’s No 3 lender admitted to 6 civil penalty proceedings filed by the country’s securities regulator, including allegations against its banking, superannuation, wealth management and its now-divested general insurance units.
- Fees for no service – deceased customers: ASIC alleges that over a 10-year period, Westpac and related entities within the Westpac group, charged over $10 million in advice fees to over 11,000 deceased customers for financial advice services that were not provided due to their death.
- General insurance: ASIC alleges that Westpac distributed duplicate insurance policies to over 7,000 customers for the same property at the same time, causing customers to pay for two (or more) insurance policies where they had no need for the additional policies. ASIC also alleges that Westpac issued insurance policies to, and sought payment of premiums from, 329 customers who had not consented to entering an insurance policy.
- Insurance in super: ASIC alleges that Westpac subsidiary BT Funds Management charged members insurance premiums that included commission payments, despite commissions having been banned under the Future of Financial Advice reforms. BT Funds Management represented that the insurance fees had been properly deducted from members accounts when in fact the insurance fees that were deducted included commissions that were not permitted. Some members also paid commissions to financial advisers via their premiums even though they had elected to have the financial adviser component removed from their account. BT Funds is remediating over $12 million to over 8,000 affected members who were incorrectly charged.
The Australian Prudential Regulation Authority (APRA) has also been reviewing these matters and ASIC and APRA have taken a coordinated approach to their respective inquiries.
- Inadequate fee disclosure: ASIC alleges that Westpac licensees BT Financial Advice, Securitor and Magnitude (all no longer operating) charged ongoing contribution fees for financial advice to customers without proper disclosure. Some fees were not disclosed to the customer at all, at other times the amount disclosed was less than the amount charged. It is estimated that at least 25,000 customers were charged over $7 million in fees that had not been disclosed, or adequately disclosed.
- Deregistered company accounts: ASIC alleges that Westpac did not have appropriate processes to manage accounts held in the names of deregistered companies. As a result, Westpac allowed approximately 21,000 deregistered company accounts to remain open. Westpac continued to charge fees on those accounts and allowed funds to be withdrawn from these accounts that should have been remitted to ASIC or the Commonwealth.
- Debt on sale: ASIC alleges that Westpac sold consumer credit card and flexi-loan debt to debt purchasers with incorrect interest rates. These interest rates were higher than Westpac was contractually allowed to charge on at least part of the debts, resulting in more than 16,000 customers, who were likely to be in financial distress, being overcharged interest. Westpac and/or the debt purchasers have refunded over $17 million to affected customers.
ASIC further alleges that in all matters, excluding Debt on sale and Insurance in super, Westpac failed to ensure that its financial services were provided efficiently, honestly, and fairly.
The full list of Westpac businesses against which the allegations are made are:
- Westpac Banking Corporation
- Advance Asset Management Limited
- Asgard Capital Management Limited
- BT Funds Management Limited
- BT Funds Management No. 2 Limited
- BT Portfolio Services Limited
- Securitor Financial Group Pty Limited
- Magnitude Group Pty Ltd
Westpac’s conduct and breaches have caused widespread consumer harm and ranged across Westpac’s everyday banking, financial advice, superannuation, and insurance businesses. Customers are entitled to have trust and confidence in Westpac being able to deliver what it promises, without suffering financial harm.
Prior misconduct
This is not the first time Westpac has found itself caught in a scandal for breaking the law. Westpac last year paid a record A$1.3 billion fine to settle Australia’s largest breach of anti-money laundering laws, a saga that cost former Chief Executive Officer, Brian Hartzer, his job.
In 2019, Australia’s largest financial regulator alleged that the banking giant had breached Australia’s anti-money laundering and counter-terrorism finance laws more than 23 million times. The breaches included failing to properly vet thousands of transactions that could be linked to child exploitation in the Philippines and other parts of South-East Asia.
Following legal proceedings launched by AUSTRAC, Westpac agreed to pay a 1.3-billion-dollar penalty for breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006.
Prevention, reform, and the right to recourse
A common aspect across the matters we have heard too often where consumers come out worse off after dealing with big banks has been poor systems, poor processes, and poor governance. This is suggestive of an overall poor compliance culture within Westpac during the dates outlined in this article.
Westpac’s chief executive, Peter King, said the bank had “fallen short of our standards and the standards our customers expect of us”.
“The issues raised in these matters should not have occurred, and our processes, systems and monitoring should have been better. We are putting things right and unreservedly apologise to our customers.”
Consumers have the right to recourse under various codes and laws including the Banking Code of Practice, the Competition and Consumer Act and the incorporated Australian Consumer Law (ACL)..
Banking Code of Practice
The Banking Code of Practice (the Code) sets out the standards of practice and service in the Australian banking industry for individual and small business customers, and their guarantors. The Code provides safeguards and protections not set out in the law. It complements the existing legislation.
All banks that commit to the Code make a commitment to their customers, to ethical behaviour, to fair and responsible lending practices and to the protection of privacy. In addition to a community and industry wide expectation, the high standards of behaviour and service set out in this Code are enforceable rights for customers.
Australian Consumer Law
The Australian Consumer Law provides for:
- National consumer protection and fair-trading laws
- Enhanced enforcement powers and redress mechanisms
- A national unfair contract terms law
- A new national product safety regime and
- A new national consumer guarantees law.
Consumer laws are enforced by two national regulators.
Australian Competition and Consumer Commission (ACCC) is responsible for enforcing the Competition and Consumer Act 2010 and the Australian Consumer Law.
Contact: ACCC Info centre on 1300 302 502 or visit the ACCC website.
Australian Securities and Investments Commission (ASIC) is responsible for promoting the confident and informed participation of consumers in the financial system through the enforcement of the consumer protection provisions of the Australian Securities and Investments Commission Act 2001, the Corporations Act 2001, and the National Consumer Credit Protection Act 2009.
The protections in the ACL are generally reflected in similar provisions in the Australian Securities and Investments Commission Act 2001 (ASIC Act), so that financial products and services are treated in the same way.
Attwood Marshall Lawyers – helping you to resolve financial disputes
If you have suffered financial loss because of incorrect financial advice or the misconduct of your bank or lending institution, you may be entitled to compensation. Our Commercial Litigation lawyers are well-versed in dealing with bank, finance, and lending institution matters and use reputable forensic accountants to assess the conduct of the banks and calculate the losses you may have suffered because of their advice or behaviour.
As Commercial Litigation specialists, we have extensive experience assisting with alternative dispute resolution and litigation matters and can help with class actions, lease disputes, defamation claims, debt recovery, property-related disputes, building and construction disputes, professional negligence claims, disputes with banks and insurance companies, disputes over contracts, and other business disputes.
It is our goal to tailor our approach to best suit the nature and complexity of each matter.
If you are involved in a banking or financial dispute, please contact our Commercial Litigation Department Manager, Amanda Heather, on direct line 07 5506 8245, email aheather@attwoodmarshall.com.au or free call 1800 621 071 to find out where you stand.
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