ASIC takes Westpac to court over alleged breaches of ‘best interests’ test

From The NewDaily.

The Australian Securities and Investments Commission is taking action against Westpac in the Federal Court on Thursday, alleging that two of the bank’s subsidiaries breached “best interests” obligations and provided personal financial advice when they were not permitted to do so.

ASIC claims that a campaign by Westpac designed to get customers to consolidate multiple super accounts breached the financial advice laws by giving advice based on personal financial information in 15 phone conversations.

The calls were made by staff of Westpac Securities Administration Limited and BT Funds Management Limited.

ASIC claims the bank specifically recommended customers roll out of their non-Westpac superannuation funds, consolidating into Westpac-related superannuation accounts. It also says the bank did not provide proper comparisons between the funds.

Westpac claims it did not give personal advice.

“In each of the 15 conversations … our customers were given a ‘general advice warning’ as is standard and a required part of our process,” BT said in a statement.

ASIC is also taking the gloves off over aggressive marketing by super funds, with the corporate regulator poised to launch enquiries with over 50 super groups.

The funds, believed to be mostly from the for-profit retail sector, will receive letters from ASIC in coming days seeking information about their marketing practices, a spokesman told The New Daily.

Were inducements offered?

ASIC is concerned that funds have been using inducements and high-pressure tactics to get employers to sign them up to lucrative default fund agreements which include insurance arrangements. These agreements channel workers into membership if they don’t actively choose another fund.

The regulator’s inquiries will investigate the quality of advice and information that is provided to employers by trustees when they are making decisions about their default funds for their employees. It will examine the funds’ responses to its questions before deciding on further action.

“We’ll be looking at all of the material around the super fund trustee relationship including the type of marketing collateral funds give to employers,” Gerard Fitzpatrick, senior executive leader of investment managers and superannuation at ASIC, told Fairfax Media.

There have been allegations of inducements offered to employers by funds and that these can result in employees being channelled into inappropriate funds.

What deals are members getting?

“We are very interested in how members are treated, and if as a result of aggressive marketing approaches or competitive drive, whether members are being disadvantaged or are being provided with information that does not allow them to make appropriate investment decisions.”

Areas that will come under ASIC scrutiny will include “advice given to employers and how this is paid for, as well as looking at disclosure material that is provided directly for employers by trustees and entities”.

Around one-third of Australians with super accounts are enrolled in default funds through their employers.

Competition for default fund status is hotting up in the $2.1 trillion super sector with employer-owned funds increasingly vacating the field and handing the business to dedicated industry and retail funds.

According to Australian Prudential Regulatory Authority data only 31 out of a total of 231 funds were identified as “corporate funds” for the year to June 2015.

The latest manifestation of this trend is news that Equip Super is set to merge with mining giant Rio Tinto’s corporate super fund later this year in a move that would see a $13.5 billion super group created to manage funds for approximately 75,000 members.

Last August the Reserve Bank of Australia moved its super balances over to Sunsuper to manage. BHP Billiton has also rolled its super fund into MLC.

ASIC takes action against Westpac entities

ASIC says it has commenced civil penalty proceedings in the Federal Court against Westpac subsidiaries Westpac Securities Administration Limited (WSAL) and BT Funds Management Limited (BTFM) for a number of contraventions, including failures of the ‘best interests duty’ introduced under the Future of Financial Advice reforms.

The proceedings follow an ASIC investigation into Westpac’s telephone sales campaigns targeting superannuation fund members. Specifically, ASIC’s case sets out 15 examples of alleged contraventions of the ‘best interests duty’ arising from two telephone campaigns instigated by WSAL and BTFM.

ASIC alleges that during the two telephone campaigns, WSAL and BTFM provided personal financial product advice to customers, specifically recommending that customers roll out of their other superannuation funds into their Westpac-related superannuation accounts. WSAL and BTFM are not permitted to provide personal financial product advice under their Australian financial services licences. Further, ASIC alleges that WSAL and BTFM did not undertake a proper comparison of the superannuation funds as required by law.

The law provides enhanced consumer protections and imposes greater obligations on financial advice licensees when they provide personal advice.

ASIC also alleges that WSAL and BTFM have:

  • failed to do all things necessary to ensure that the financial services covered by their  licences are provided efficiently, honestly and fairly;
  • failed to comply with the conditions of their licences which only permits those licensees to provide general advice; and
  • failed to comply with the financial services laws in the Corporations Act.

ASIC and Westpac will continue to cooperate to limit the facts in dispute in the proceedings. The first hearing for the proceedings will be on 2 February 2017 at 9.30am in the Federal Court in Sydney.

These proceedings form part of ASIC’s Wealth Management Project, focusing on the wealth divisions of the major banks, AMP and Macquarie (refer: 15-081MR).

Westpac Ups Interest Only Rates

Alongside NAB’s rate hike, Westpac also announced a lift in their interest only mortgage rates for investors. They also highlight switching to a principal and interest repayment loan offers a lower rate.

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Effective 16 December 2016, Westpac will increase the interest rates of some of its Interest Only variable home lending products, including:

  • Variable home loan (owner occupier) rate for customers with Interest Only repayments: by 0.08% to 5.41% per annum (comparison rate 5.55% per annum*);
  • Variable residential investment property loan rate for customers with Interest Only repayments: by 0.08% to 5.68% per annum (comparison rate 5.82% per annum*).
  • Equity Access loan rate: by 0.15% to 5.80% per annum.

Our interest rates are constantly under review, as market and economic conditions change.

Switching from Interest Only to principal and interest repayments

We offer lower interest rates to customers who make  principal and interest repayments to encourage them to pay down their debt and own their home faster.

If you wish to pay your home loan sooner by switching to principal and interest repayments, you can do so by contacting us on 132 558 and we’ll talk through your options.

Customers with Premier Advantage Package can switch at any point in time at no additional cost.

Impact on my repayments?

For Interest Only home loans, your repayments are adjusted automatically. The repayments will change from the first repayment date after the interest rate change becomes effective.

Westpac online banking back after four days

From IT Wire.

Westpac’s online banking service has been on the blink for the last three days, with users unable to process payments and update balances.

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On a Web page meant to keep customers abreast of the technical difficulties, the bank wrote: “We’re continuing to address intermittent issues with transactions, balances and Get Cash in Mobile and Online banking.

“We’re sorry for the inconvenience caused and we are working to fix this issue.”

People can log in to online accounts at times but the balances shown are way out of whack.

Update, Sunday 6pm: A Westpac spokesman told iTWire: “Our systems are currently running normally. Transactions and transfers are processing, and account balances are updating in Online and Mobile Banking.

“We’re so very sorry this has inconvenienced many of our customers, and we’d like to thank them for their patience.”

The bank said any fees incurred as a result of these issues would be refunded. It added that the Westpac Live issues (intermittent) started on Wednesday evening and stabilised at lunchtime on Saturday.

Westpac FY16 Profit Down 7% – Mortgage lending the pillar within the pillar!

Westpac Group today announced a Full Year 2016 statutory net profit of $7,445 million, down 7% compared to the prior corresponding period. However, cash earnings were $7,822 million, in line with the prior year, and above expectations, thanks mainly to a lower than anticipated impairment charge. The balance sheet remains strong, with NSFR above 100%. The Australian retail banking operations have been the pillar of the business, whilst wealth, institutional and insurance is under pressure. Mortgage lending is the pillar within the pillar!

It is worth saying that cash earnings is not a measure of cash flow or net profit determined on a cash accounting basis, as it includes non-cash items reflected in net profit determined in accordance with Australian Accounting Standards. So the specific adjustments include both cash and non-cash items. Cash earnings is reported net profit adjusted for material items to ensure they appropriately reflect profits available to ordinary shareholders. All adjustments shown are after tax.

wbc-fy16-recHere is a quick summary of the results.

wbc-fy16Total revenue was up 3%, with good growth in net interest income to $15,348 million, up 8%. The expense to income ratio at 42%, down 7 basis points.

Total lending rose 6%, with growth in Australian mortgages of 8% and Australian business lending rising 3%, with a skew to SME lending. New Zealand lending increased 9% in NZ$.

wbc-fy16-loans-by-divLoan growth was fully funded by customer deposits which increased by $39 billion, or 9%, with the deposit to loan ratio improving 2 percentage points to 70.5%.

Non-interest income of $5,855 million was down 7%. This reflects a range of infrequent and volatile items including lower revenue from BTIM following the partial sell down in the second half of 2015. Excluding infrequent and volatile items, most of the decline was due to lower markets activity — impacting fees in WIB — and lower cards-related income in the Consumer Bank;

The net interest margin was up 5 basis points to 2.13%. Excluding Treasury and Markets, net interest margin was up 3 basis points. During the second half the 3 basis point fall in the margin reflects the impact of higher funding costs and lower interest rates.

wbc-fy16-nimThe expense to income ratio was 42%, with expenses up 3% in line with revenue growth. Regulatory and compliance costs added 1% to expense growth for the year.

The 49% rise in impairments compared to the prior corresponding period mostly reflects a small number of institutional exposures that were downgraded in the first half 2016.

wbc-fy16-impairments-trendHowever, the second half impairment charge of $457 million was 31% lower compared to the first half 2016. We wonder whether the divergence between stressed and impaired loans is sustainable.

wbc-fy16-groo-impairmentsWhilst credit quality remains sound, the level of stressed assets rose modestly over the year by 21 basis points to 1.20% at 30 September 2016. Second Half 2016 saw an increase in stressed exposures, reflecting continuing low prices for NZ dairy products and the ongoing impact of the slowdown in mining investment on some regions.

wbc-fy16-stressedThe cash return on equity (ROE) of 14.0%, down 185 basis points whilst the final, fully franked dividend of 94 cents per share (cps), taking total dividends paid for the year to 188 cps, was unchanged.

wbc-fy16-roe wbc-fy16-divCommon equity Tier 1 capital ratio of 9.5%, down 2 basis points, having raised around $3.5 billion in capital through the Entitlement Offer in November 2015.

wbc-fy16-cet1On an internationally comparable basis, Westpac’s CET1 capital ratio was 14.4% Group implemented recent APRA requirements that increased RWA by $43 billion for Australian residential mortgages.

Looking at the performance of the business segments, there was strong growth in the retail franchise, especially in the Australian consumer bank.

wbc-fy16-earningsHowever, conditions were tougher in the Wealth and Insurance businesses.

wbc-fy16-wealthibearningsNet interest margin varies by segment.

wbc-fy16-nim-divFee income rose in the Australian consumer and business banks.

wbc-fy16-feesConsumer Bank continued to build the value of the franchise, with record new customer acquisition and 8% loan growth, contributing to a 14% rise in cash earnings. However, growth slowed in the second half, in part reflecting the impact of higher funding costs and increased competition.

The business has continued to invest in service initiatives by improving its mobile banking apps and increasing the functionality of its online platforms. Consumer Bank remained disciplined on costs, with its cost to income ratio down 166 basis points to 40.8%.

Given the importance of the mortgage book to the bank, we note the book grew from $375.8 bn in Sep 15 to $404.2 bn in Sept 16. They showed that $35.1bn are offset, including current account balances.

wbc-fy16-offsetsThey had a flow of new mortgages of $41.8 in 2H.  39.5% are investment loans, no change on last year, and are growing at 5.9% currently. The share of loans via the broker channel have risen from 41.8% to 44.1% since last year.  83% are variable rate loans.

The average LVR of new loans is 70%. 72% of households are ahead with payments. Australian mortgage 90+ day delinquencies have increased 21 basis points compared to 2015, including 13 basis points from changes in how loans to customers that have been granted hardship assistance are reported.

wbc-fy16-90-mortgageActual mortgage losses remain at 2 basis points, but delinquency continues to rise in WA.

wbc-fy16-mortgage-del There are only 262 houses in possession in a mortgage book which comprises 1.6 million mortgages; with losses in the portfolio equivalent to 0.02%.

In terms of mortgage underwriting, they have had a minimum assessment (floor) rate 7.25% and buffer rate of at least 2.25% since September 2015.  They have tightened policy on assessment of living expenses and income since verification in November 2015 and are discounting of rental income, annuity and pension income increased for certain loans since January 2016.

In addition, non-resident and ex-pat lending has been tightened, from April 2016, non-resident customers no longer qualify for mortgage
loans (limited exceptions) and for Australian and NZ citizens and permanent visa holders using foreign income, tightened verification processes and LVR restricted to 70% maximum.

Different rates for investment property loans and interest only
repayment types progressively introduced from August 2015.

Following guidance from APRA the industry is aligning treatment of hardship in delinquencies. Westpac changed measurement and
delinquency treatment of new hardship accounts in 1H16. No impact on the risk profile of the Group or asset classes. At the same time, hardship policies have tightened. An account in hardship is no longer frozen and
continues to migrate through delinquency buckets until 90+ days. Accounts continue to be reported as delinquent until the customer has maintained repayments for 6 months – called the ‘serviceability period’. The average hardship period granted is 3-4 months, so the hardship + serviceability period = 10 months average.

Business Bank grew core earnings by 5%, with 5% growth in lending, including 8% growth in business lending to small and medium enterprises. This reflects success in strengthening the franchise, including investing in improved digital platforms for both customers and bankers, with LOLA originating $1.4 billion in new lending to date. Revenue was up 5%, while cost growth was contained to 4% despite significant investment in digital applications. Cash earnings growth was lower at 1%, due to higher impairment charges. This largely reflects lower write-backs than previous years, and increased provisions for auto finance and those sectors and regions that are affected by the slowdown in mining investment.

BT Financial Group achieved significant strategic milestones, although cash earnings were 4% lower due to the partial sale of BTIM, lower Ascalon contribution, and higher regulatory costs. Excluding the impact of the partial sale of BTIM in 2015, cash earnings reduced by 2%. BTFG has delivered important new core capabilities through the development of its Panorama platform, as well as significantly expanding its insurance product offering and growing FUM and FUA by 5% and 7% respectively.

Westpac Institutional Bank continues to face both structural and cyclical pressures with cash earnings down 18%. The lower result was driven by a $215 million increase in impairment charges and reduced fee income from subdued lending and markets activity. Markets income was $109 million higher due to the absence of the derivative valuation impact last year. While margins were lower over the year, WIB’s margin stabilised in the second half, expanding by 4 basis points. Despite difficult conditions, WIB was disciplined on balance sheet growth and costs, while continuing to support key customers. WIB’s asset quality remains sound. However, provisions for four large names in First Half 2016 and lower write-backs and recoveries saw an impairment charge of $177 million, compared to an impairment benefit of $38 million in full year 2015.

Westpac New Zealand’s cash earnings decreased 4% to NZ$872 million. Loans grew 9%, however, intense competition for new lending and a shift to lower-spread fixed rate mortgages has compressed margins. Weak financial conditions in the dairy sector drove stressed assets to TCE up 94 basis points to 2.54%. Impairment charges increased $12 million as a result of the increased stress in the dairy portfolio and also from a lower level of write-backs and recoveries compared to the prior corresponding period.

 

 

 

Westpac Group Customer Advocate Announced

Westpac has announced the appointment of Adrian Ahern as the Westpac Group Customer Advocate, a new position, which will provide an avenue of independent review for Westpac Group retail and small business customers outside of standard internal review processes.

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Westpac Group CEO, Brian Hartzer, said the Customer Advocate, part of our commitment under the ABA’s Six Point Plan, supported Westpac Group’s commitment to becoming one of the world’s great service companies.

“The appointment of Mr Ahern enhances Westpac Group’s dispute resolution framework, and provides an additional level of confidence for customers in ensuring the process is fair and transparent.

“The Customer Advocate will have the power to review and make independent, binding decisions about individual retail or small business customer complaints where customers are not satisfied with the internal dispute resolution process.

“An important part of Mr Ahern’s role will be to recommend, where necessary, changes to policies and procedures across the Westpac Group to ensure the best outcomes for customers,” Mr Hartzer said.

“Mr Ahern is an extremely well regarded professional with a diverse range of experience across corporate and non-profit organisations.

“Mr Ahern’s long-term involvement in community activities, as well as his experience as Global Chairman of an international law firm, reflects both his integrity and empathic leadership style and underscores the respect he has earned both professionally and personally,” Mr Hartzer said.

Mr Ahern has over 30 years’ experience in corporate law and governance and is currently a partner at Norton Rose Fulbright. During 2013-14 Mr Ahern was Global Chairman of Norton Rose Fulbright. He began his legal career at Ashurst.  Mr Ahern has served on the boards of a number of non-government organisations, and continues to contribute to various community organisations.

Mr Ahern will report to Westpac Group Deputy CEO, Phil Coffey. He will be supported by the Office of the Customer Advocate, a dedicated team of specialists with experience from across Westpac Group.

Westpac to Remove all Teller Product Related Incentives

Westpac Group CEO, Brian Hartzer, at a speech to the Australia Israel Chamber of Commerce in Melbourne called for ongoing and significant changes to the way banks work with their customers.

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The trust gap.

Having said all that, it is impossible to convince someone of the value you’re adding if they don’t trust you. And we need to recognise, that, as an industry, we have a trust gap.

Trust is at the heart of banking. And trust in banking is like trust in any other relationship: It requires that we treat people fairly and honestly.

As a result of things some bankers have done, or the way banks have responded when things have gone wrong, some people have concluded that banks—and bankers—are only out for themselves.

And banks only have themselves to blame for that.

We need to recognise that at times we have not met the expectations of the community. People are saying things need to change. They do need to change.

The good news is they are changing.

Across the industry we are changing processes and we are changing behaviours.

At Westpac we are going back to basics and reviewing all of our products, policies, and processes, to make sure they are working in our customers’ interests.

I’ll give you one small example.

Last week some of you may have read about a mistake we made with one of our products. We weren’t applying a discount properly on some accounts for younger customers. The fees needed to be manually reversed and in some cases they weren’t. Through our reviews we identified the mistake, reported it to ASIC, refunded the money, and have now put automated systems in place to make sure it won’t happen again. Procedural mistakes like this are not acceptable. And they do nothing to help banks regain trust from people who are already skeptical.

Yes, we found it and fixed it: Part of the Westpac ethos is that if we get it wrong we put things back on track.

But this small example shows the need for constant vigilance and continuous improvement on the part of the banking industry.

We’re also focusing on our culture more broadly, reinforcing our goal of being one of the world’s great service companies.

Let me be clear: I am proud of the 40,000 people who work at the Westpac Group. I know that overwhelmingly they come to work each day wanting to deliver great service and help their customers.

Across the company, complaints have fallen by over 70 per cent in the last four years. Over the past three months we had three times as many compliments as complaints in our branch network. This gives me confidence we are on the right track—but we know we need to do more.

We are putting our financial advisers through ethics training, and are incorporating the principles of the banking oath into our code of conduct for all employees.

We are also changing practices that might be seen as creating potential conflicts of interest.

Through the Australian Bankers’ Association we are working to agree on steps the industry can take to eliminate the perception of conflicts of interest in the way front line staff are paid. An independent expert is reviewing those practices and we will adopt whatever is agreed.

Having said that there are things Westpac can do on our own, and we’re moving ahead.

From next month we’re planning to remove all product related incentives across our 2,000 tellers in the Westpac branch network. Rather, their incentives will be based entirely on customer feedback about the quality of service they received in the branch.
We have also revisited the way we reward specialised sales roles in our network. We will no longer vary reward values based on different products; but rather our people will be rewarded for meeting the full range of our customers’ needs.

This is all part of making sure that when our customers walk into a branch, they don’t have cause to question the quality of service that they’re getting, or the motivation of our people.

At the same time we’re reinforcing standards of behaviour, and enforcing consequences when people fall short.

We’re appointing an independent customer advocate who is empowered to resolve issues for our customers. And who can overturn decisions made by our internal dispute resolution process.

And we’re investing more in our compliance and oversight capabilities, to make sure we can quickly spot and resolve issues when they occur.

We’re also continuing to give back to the community, through our support of the Westpac Rescue helicopters, the Westpac Bicentennial Foundation, which gives a hundred scholarships a year, volunteering leave and matching gifts for staff, and 200 Westpac community grants of $10,000 each this year alone.

It’s part of why the Dow Jones Sustainability Index has just recognised Westpac as the world’s most sustainable bank, for the third year in a row.

And we’ll continue to take action now, Royal Commission or not.

Westpac makes $16.5m investment in Fintech uno

Fintch “uno” has received a $16.5m strategic investment from Westpac.   uno is a digital mortgage service offering households tools to search, compare and settle a better home loan for themselves online, including realtime chat

uno allows consumers to access real-time home loan rates based on their personal situation – not just advertised rates. These next generation tools– that in the past only a traditional mortgage broker would have access to – allow them to calculate their borrowing power across lenders, save and share their data with someone else getting the home loan, and select the option that best suits their needs. The entire system is built on the premise that if people had the right knowledge and access to information, they could do better for themselves.

The entire uno loan application process can be done from a desktop, tablet and smartphone, and is supported by a team of experts who can help with real-time advice, when a consumer wants it.

So it is an alternative to a mortgage broker and so far they say more than $400m loans have been search for via the platform. uno’s home loan experts that provide advice do not personally receive sales commissions. The company says they take out all of the filters and pre-decisions that traditional brokers apply before making a recommendation to a home buyer and instead offers full transparency, putting decision making power in the hands of the consumer.

productshot-mobileThe company says: uno is redefining the way property finance is secured by using a ‘technology plus people’ approach to provide the consumer the power to get a home loan that gives them a better deal – from both major and smaller lenders via any digital device with real-time advice and support. Driven by next generation tools and calculators with the capability to provide real-time home loan rates and borrowing power based on a consumer’s personal situation, uno has reimagined how Australians can buy or refinance a home.

The successful launch of unohomeloans.com.au in May this year has attracted a number of high profile investors, such as Westpac, that have discovered the service’s potential to redefine how Australians buy or refinance their home.

The popularity of the unohomeloans.com.au service has grown rapidly as customers have discovered the benefits of having greater power in the home loan search process, and direct access to the technology and information that traditional mortgage brokers use. uno’s offering also includes full-service support and advice for customers via chat, phone and video, helping customers search, compare and settle in the one place.

Founder and CEO of uno, Vincent Turner, said in the three months since launch, millions of dollars’ worth of loans had been settled as customers reviewed their loan position with uno’s service team to find a better deal in today’s low interest rate environment.

Mr Turner said: “We’ve grown to 34 employees to meet the service demands of thousands of registered customers who have used the platform to compare more than $400 million worth of mortgages. With the support of our investors we’ve worked hard to test and enhance the customer experience, as well as finesse the functionality of our original platform to include options such as new calculators and video chat.”

Chief Strategy Officer at Westpac, Gary Thursby, said: “uno’s success has been impressive and we’re seeing its potential to become a serious player in the home loan market. Westpac has been involved since the concept phase, and today we’re pleased to announce we will increase our involvement in uno as a strategic investor. Westpac is proud of its reputation as a supporter of early stage fintech companies like uno that drive digital innovation and benefit Australians.”

Mr Turner added: “We knew from the start that by creating a platform with direct visibility to lenders’ products and pricing, we could give Australians greater control over the home loan process and the confidence to achieve the best home loan deal. We also challenged the status quo by giving customers the ability to search, compare and settle a home loan in the one place, which has proven extremely useful for busy professionals. “With the healthy investment we need to drive the company forward, we are excited to keep expanding and help more people get a better home loan.”

Westpac refunds $9.2 million after failing to waive bank account fees for eligible customers

ASIC says Westpac Banking Corporation (Westpac) has refunded approximately $9.2 million to 161,414 customers after it failed to waive fees on Westpac and St. George branded savings and transaction accounts over six years.

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For customers aged under 21 years, Westpac previously relied on staff to manually apply the following fee waiver benefits:

  • a monthly service fee waiver for customers with a Westpac Choice transaction account; and
  • a withdrawal fee waiver for customers with a Westpac Reward Saver account.

However, between May 2007 and April 2013, 133,045 Westpac Choice and Westpac Reward Saver accounts were opened for some eligible customers without the relevant fee waivers being applied.

Westpac also discovered that there were 28,369 customers under the age of 18 who were eligible for a St. George Complete Freedom Student transaction account (which has no monthly service fee), but instead held a standard St. George transaction account which charged a monthly fee.

Westpac reported this matter to ASIC under its breach reporting obligations in the Corporations Act. ASIC acknowledges the cooperative approach taken by Westpac in resolving this matter.

Compensation and systems changes

Westpac has now provided refunds to affected customers. The refund payments included an additional amount reflecting interest.

In addition to compensating customers, Westpac is enhancing the account opening process for these Westpac and St. George products to ensure all new eligible customers receive the relevant fee waivers. This includes automated application of the relevant fee waivers based on the customer’s date of birth submitted during the application process. Westpac also monitors this activity to ensure the correct treatment of eligible accounts.

ASIC Deputy Chairman Peter Kell said, ‘Financial institutions that offer products with benefits such as fee waivers must have effective and robust systems in place to deliver the promised benefits to consumers.’

‘Businesses that rely on manual processes to apply waivers, discounts and other benefits should carefully consider how they manage the risks of processes not being followed, including having appropriate controls and procedures in place.’

Westpac refunds $20 million in credit card foreign transaction fees

ASIC says Westpac Banking Corporation (Westpac) has recently refunded approximately $20 million to around 820,000 customers for not clearly disclosing the types of credit card transactions that attract foreign transaction fees.

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Following a customer complaint, Westpac notified ASIC that customers may have been incorrectly charged foreign transaction fees for Australian dollar transactions processed by overseas merchants. Because Westpac’s terms and conditions did not clearly state that foreign transaction fees would be charged for such Australian dollar transactions, Westpac commenced a process to identify impacted customers and provide refunds with interest.

Westpac has updated its disclosure to clarify that Australian dollar transactions – when they are processed by overseas merchants – will also attract a foreign transaction fee.

ASIC Deputy Chairman Peter Kell said, ‘It is essential for consumers to know when fees will be charged, so that they can make an informed decision when using financial products and services.’

ASIC acknowledges the cooperative approach taken by Westpac in its handling of this matter, and its appropriate reporting of the matter to ASIC.

ASIC warning to consumers

ASIC is also issuing a warning to consumers about unanticipated credit card foreign transaction fees.

It may come as a surprise to consumers that transactions made in Australian dollars with overseas merchants, or processed by a business outside Australia, can attract a foreign transaction fee. This may even occur where the merchant’s website has an Australian address (domain name) or where a foreign business advertises and invoices prices in Australian dollars.

‘It may not always be clear to the consumer that the merchant or entity is located outside Australia, particularly in an online environment where the website uses an Australian domain name,’ said ASIC Deputy Chairman Peter Kell. ‘We urge consumers to check whether the transaction they make is with an overseas-based merchant or processed outside Australia, especially when they shop online.

‘Equally, credit card issuers need to ensure that the disclosure of such fees is clear so customers understand the fees that they are charged when using their cards.’

‘Not all cards impose foreign transaction fees. For consumers who make frequent overseas purchases, it is worth shopping around for a card that offers no foreign transaction fees,’ he said.

ASIC is working with other industry participants on this issue, including by requiring improved disclosure by a number of credit card issuers.

Overseas merchants who display prices to Australian consumers in Australian dollars will usually give consumers the choice to pay in the applicable foreign currency or in the Australian dollar equivalent, as converted by the merchant at their own exchange rate (using a process known as ‘dynamic currency conversion’). As consumers may be unable to avoid paying international transaction fees for Australian dollar transactions with overseas merchants, consumers may wish to pay in the applicable foreign currency if they expect the exchange rate to be applied by their card issuer to be more competitive than the exchange rate used by the merchant.

Customers with queries or concerns about the charging of credit card foreign transaction fees should contact their credit card issuer. ASIC has published specific information and guidance for consumers about the charging of international transaction fees by credit card issuers on its MoneySmart website.

Background

A foreign transaction fee (also known as an international transaction fee) is a fee charged by many credit card providers for transactions – including purchases and cash advances:

  • that are converted from a foreign currency to the Australian dollar; or
  • that are made in Australian dollars with merchants and financial institutions located overseas; or
  • that are made in Australian dollars (or other currencies) that are processed outside Australia.

A foreign transaction fee is generally calculated as a percentage of the Australian dollar value of the transaction (typically up to 3.5%). Credit card schemes (such as Visa, MasterCard and American Express) have different rules about foreign transaction fees and the percentage fees will vary depending on the card scheme.

Debit cards may also attract a foreign transaction fee, and consumers are encouraged to check the terms and conditions to find out whether this fee will be imposed by debit card issuers.

From March 2014, Westpac’s credit card terms and conditions did not clearly state that a ‘foreign transaction fee’ would be charged for transactions:

  • for ‘card-not-present’ transactions in Australian dollars with merchants located overseas;
  • in Australian dollars with  financial institutions located overseas; or
  • in Australian dollars (or any other currency) that is processed by an entity outside Australia (together referred to as Overseas Transactions in Australian Dollars).

This may have led customers to believe that a foreign transaction fee would be charged only when a transaction was made in a foreign currency that required a conversion into Australian dollars at the time of the transaction.

Affected customers have been provided compensation, including:

  • a refund of the foreign transaction fee charged on the transaction;
  • where any credit card interest was charged on the foreign transaction fee amount, a refund of the interest component; and
  • an additional interest payment on the refund amount from the date the foreign transaction fee was charged until the date of refund.