Westpac shares (ASX:WBC) fell back 0.6% by the close, having bounced more than 1.% off the intraday low after the Federal Court confirmed a civil penalty more than double what the bank had proposed, marking the latest chapter in Australia’s regulatory crackdown on lender treatment of vulnerable borrowers.
The WBC share price closed at A$36.39, underperforming it’s peers, with CBA up 0.31%, ANZ down 0.25%, and NAB down 0.63% on the day. While the dollar amount represents barely a rounding error against Westpac’s multi-billion dollar annual profit base, the earlier reaction reflected concerns.
The penalty announcement follows similar enforcement actions across the sector, with National Australia Bank facing a $15.5 million penalty and ANZ Banking Group agreeing to a $40 million hardship-related component within a landmark $240 million mega-settlement last year.
Court Ruling
The Federal Court ordered Westpac to pay $26 million after finding the bank systematically failed to properly handle online hardship applications from vulnerable customers over approximately six years. The penalty came in well above Westpac’s proposed $10 million settlement figure, with the court explicitly signalling that the conduct warranted a stronger deterrent message.
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The failures extended across Westpac’s entire group, affecting customers of the main Westpac brand as well as St.George, Bank of Melbourne, and BankSA. More than 200 online hardship requests either exceeded the statutory 21-day response deadline or received no response at all, according to evidence presented to the court. The affected customers included people experiencing job loss, serious illness, domestic and family violence, and natural disaster impacts, precisely the circumstances that hardship provisions are designed to address.
Reporting of the court decision noted the judge described Westpac’s conduct as “grossly negligent” in its treatment of hardship applications, language that carries particular weight given the vulnerability of the customer cohort involved. The court also highlighted significant downstream harm, including adverse credit file entries that damaged customers’ borrowing capacity, debts sold to third-party collection agencies, and aggressive pursuit of repayment while hardship requests sat unanswered in the bank’s systems.
While the $26 million penalty is financially immaterial for a bank of Westpac’s scale, the broader cost of compliance remediation could run into the hundreds of millions of dollars when system upgrades, process redesign, additional staffing, and monitoring are factored in. These investments represent an ongoing drag on operating leverage and efficiency ratios, even as they are necessary to meet regulatory expectations and rebuild trust.
Moving On
The confirmed penalty brings legal closure to this specific matter, allowing management to position it as addressed and move forward. The more significant question is whether Westpac can demonstrate to markets that it has genuinely turned the corner on compliance and operational risk, or whether further legacy issues will continue to surface and erode confidence.
With ASIC maintaining an elevated focus on consumer protection and the judiciary showing willingness to impose penalties above negotiated levels, the regulatory environment for Australian banks has structurally tightened. For Westpac, carrying the baggage of past failures, the bar to restore full market confidence remains high even as the dollar cost of this particular penalty proves modest.
