Westpac Fined $26 Million for Hardship Failures — Why Non-Bank Lenders Treat Borrowers Differently

The Federal Court has ordered Westpac to pay a $26 million civil penalty after finding the major bank repeatedly failed borrowers experiencing financial hardship. The ruling, handed down on 27 May 2026, represents one of the most significant penalties imposed on an Australian bank for hardship-related misconduct.

The presiding judge was blunt in the assessment: Westpac's systems and processes were found to be systematically inadequate, leaving vulnerable borrowers without the support they were legally entitled to receive.

What Westpac Did Wrong

According to court findings, Westpac failed to respond adequately to customers who formally requested hardship variations — including those who had lost their jobs, experienced illness, or faced family crises. Rather than genuinely engaging with each borrower's circumstances, the bank's approach was found to prioritise rigid process over human outcomes.

This is not the first time a major Australian bank has faced this type of sanction. ASIC has repeatedly flagged borrower hardship as a systemic weakness across the big banks.

Your Legal Rights as a Borrower

Under Australia's National Consumer Credit Protection Act (NCCP), all lenders — banks and non-banks alike — are required to consider hardship assistance requests. Lenders must:

• Genuinely assess each hardship request on its merits
• Offer alternatives such as repayment deferrals, interest-only periods, or loan restructuring
• Respond within a reasonable timeframe (typically 21 days)
• Not move directly to enforcement or default without first exploring hardship options

If your lender fails to comply, you have the right to lodge a complaint with the Australian Financial Complaints Authority (AFCA), which is free for consumers.

Why Non-Bank Lenders Often Handle This Better

There are structural reasons why non-bank lenders tend to approach hardship situations differently:

Smaller teams, direct relationships. Non-bank lenders typically have closer contact with borrowers throughout the loan term. There are fewer layers between a borrower in difficulty and the person with authority to make a decision.

No rigid institutional process. Major banks operate with extensive compliance frameworks that can turn hardship into a bureaucratic exercise. Non-bank lenders generally have more flexibility to negotiate individual solutions.

Case-by-case credit philosophy. Non-banks like MPFG Capital were built to handle non-standard situations from the start — self-employed income, irregular cash flow, complex asset structures. This same flexible mindset applies when circumstances change during a loan.

What to Do If You're Under Financial Pressure

Whether you are with a bank or a non-bank lender, here are the steps to take:

1. Contact your lender immediately and formally request a hardship variation in writing.
2. Document your situation — evidence of job loss, illness, reduced income, or other circumstances.
3. Keep records of all communications, including dates, names, and responses.
4. If you don't get a satisfactory response, contact AFCA (www.afca.org.au).
5. Speak to a broker about whether refinancing to a lender with more flexible policies is viable.

The Bigger Picture

The $26 million Westpac penalty is a reminder that Australia's major banks — despite their size and resources — are not automatically the best partner for every borrower. For those who need flexibility, understanding, and a genuine working relationship, non-bank lenders continue to offer a meaningfully different experience.

This article is for informational purposes only and does not constitute financial or legal advice.