Automated Systems and acting efficiently, honestly and fairly.

Section 47(1) (a) of the Credit Act requires lenders and brokers to act “efficiently, honestly and fairly”. ASIC regularly claims lenders breach this section as it’s a general requirement of their Australian Credit Licence. This time, ASIC’s actions concern a system issue that was left unattended for many years.

A hardship issue

ASIC has recently commenced further legal action in the Federal Court against Westpac Banking Corporation (“Westpac”). It includes its subsidiaries, St George, BankSA and Bank of Melbourne. In its Concise Statement, ASIC claims Westpac’s failure to adhere to hardship requirements is in breach of the National Consumer Credit Protection Act 2009 (Cth) (“NCCP”) and the National Credit Code (“NCC”). It claims these events occurred between 2 October 2015 to 20 March 2022.

The Concise Statement states Westpac has already admitted breaching s.72 of the NCC.

ASIC allegations

Reading between the lines, it would appear Westpac implemented an automated process to accept and respond to hardship requests. As a result of system failures, however, ASIC alleges:

a) the online hardship notices submitted by 448 customers were not sent to Westpac’s Customer Assist team for processing;
b) on at least 229 occasions, Westpac either failed to respond with a written decision notice within the statutory timeframe prescribed by s 72(5) of the Code, or at all;
c) on at least 34 occasions, Westpac declined a customer’s hardship notice on the basis that the customer had not provided sufficient information to assess their request when they had;
d) on at least 22 occasions, Westpac recorded adverse repayment history information (“ARHI”) on affected customers’ credit files;
e) on an unknown number of occasions, Westpac recorded default information on affected customers’ credit files, within the meaning of s 6Q of the Privacy Act;
f) on at least 21 occasions, Westpac sold an affected customer’s account to a third party debt purchaser; and
g) on at least 3 occasions, Westpac commenced proceedings to recover possession of a mortgaged property of an affected customer.

I think you can safely add to this list a failure to apply any manual oversight to the automated processes Westpac implemented.

The licence requirements

Aside from this, though, it’s clear ASIC’s main concerns centre on Westpac’s failure to fix the hardship issue quickly. It’s looking to make a point. What will be damning for Westpac is that it’s management knew something wasn’t working properly. The issue was mentioned in a number of internal reports within the period stated and a 2023 Audit Report.

As a result, ASIC alleges Westpac hasn’t acted “efficiently, honestly and fairly” and has breached s.47(1)(a).

If the Court agrees with ASIC, it also breaches s.47(1(c) (failure to comply with its licence conditions). Section 47(4) provides for a 5,000 penalty unit and if applied to each event, amounts to a very substantial penalty. Westpac has already remediated $679,249.90 and made additional payments totalling $274,573,38 for non-financial losses. What it cannot remediate, though, are:
(a) those affected clients that became bankrupt or entered a debit agreement; or

(b) for the impact the ARHI that Westpac lodged on the affecter customers’ credit files.

This issue is likely to have far reaching implications across the industry. Acting “efficiently, honestly and fairly” is a basic requirement for every licence holder. I would argue a licence holder has to do all three things contemporaneously. It once again emphasises that ASIC believes lenders cannot simply rely on automated systems without having sufficient human resources to apply manual oversight to ensure everything’s working as it should. Failure to do so might well be perilous both consumers and the company.

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