Westpac is refunding $65 million to about 200,000 customers after it failed to pass on benefits they should have received under package deals offered by the bank.
The bank on Thursday said an internal review had detected problems whereby it failed to automatically pay consumers all the benefits they were entitled to under packages sold through Westpac, St George, BankSA and Bank of Melbourne.
Under the packages, customers were meant to get discounts on products including home loans, credit cards and transaction accounts, but the bank said it had not given the discounts on "ancillary" products including home and contents insurance.
The chief executive of Westpac's consumer bank, George Frazis, apologised and said all affected customers would receive refunds.
"When we identified these issues, we started the process of putting things right for customers. We also notified ASIC [regulator the Australian Securities and Investments Commission]," Mr Frazis said in a statement.
"Westpac apologises unreservedly for a process that did not suit customers. By automating the discounts, we have ensured that our customers will not be affected in this way again."
The refunds are expected to total $65 million, or $45 million after tax, and will be included in its upcoming full-year results.
The refunds being paid by Westpac are for customers who took out "Premier Advantage" or "Advantage" packages with the bank from 2010.
Earlier this month, Mr Frazis said Westpac would also scrap "outdated" rules that resulted in customers being charged fees if they made more than a certain number of transactions each month, and it put a $5 cap on personal account-keeping fees.
News of the refund comes as National Australia Bank and Commonwealth Bank will appear before the federal government's banking inquiry on Friday, following last week's questioning of Westpac chief executive Brian Hartzer and ANZ Bank chief Shayne Elliott.
