ASIC finds banks overcharged $55m in interest due to offset account errors

The Australian Securities and Investment Commission (ASIC) has identified that Australian banks charged mortgage holders approximately $55 million in excess interest due to errors with mortgage offset accounts. A review of more than 200,000 home loans across eight lenders revealed systemic failures, including accounts being inadvertently unlinked and difficulties in identifying customer requests. While the Australian Banking Association noted that errors occurred in less than 1% of cases, ASIC chair Sarah Court stated that some banks were "not getting the basics right," causing hidden harm to borrowers who paid higher interest and took longer to repay loans.

ASIC reported that lenders have already repaid $55 million to hundreds of thousands of customers over a two-year period, with warnings that this figure may rise as remediation efforts continue. The total savings held in mortgage offset accounts in Australia have reached nearly $350 billion. Specific failures identified include banks accidentally unlinking offset accounts during mortgage processing (one case resulted in a customer paying over $3,500 in extra interest in a single month) and difficulties in verifying whether customers had requested an offset account.

Simon Birmingham, CEO of the Australian Banking Association, stated that errors occurred in less than 1% of cases and that banks had compensated identified customers, often for manual errors. He emphasised that in more than 99% of cases, banks managed the accounts correctly. However, ASIC found that some institutions struggled to verify whether a customer had even requested an offset account, suggesting the issue could be more widespread than initially apparent.

ASIC chair Sarah Court highlighted that when offset accounts fail, the harm is often hidden because loan repayments remain unchanged while customers unknowingly pay more interest and extend their loan terms. This represents a double blow, as borrowers lose promised interest savings and the opportunity to deploy that capital elsewhere. Court noted that in some instances, offset failures went undetected until ASIC began its inquiries, a situation she said should concern every bank offering such accounts.

Consumer advocates have criticised the delays in compensation and the difficulty borrowers face in detecting these errors during a cost-of-living crisis. Meg Dalling from the Consumer Action Law Centre described the multiple failures as unacceptable, noting they prolong loan repayment periods. Sally Tindall from Canstar expressed alarm at the findings, stating that mortgage holders are focused on meeting monthly repayments and should not be required to constantly double-check their banks for operational errors.