Westpac yet to deal with IO investor refunds after systems error

Westpac will provide interest refunds to 13,000 owner-occupier borrowers who have interest-only home loans.

The refunds amount to $11 million for 9,400 of those customers.

The remediation follows an error in Westpac's systems which meant that these interest-only home loans were not automatically switched to principal and interest repayments at the end of the contracted interest-only period.

To remediate the affected customers, Westpac will now:

• Refund the additional interest paid from when the loan was contracted to convert to principal and interest repayments
• Discount the interest rate for the remaining term of the loan.

This remediation has been designed so that customers pay no more interest over the life of the loan than they would have if the system error had not occurred.

ASIC will monitor Westpac's remediation.

ASIC and Westpac are yet to conclude an appropriate remediation program for investor customers with interest-only loans affected by the same system error.

This has been a long-standing error between 1993 and August 2016.