The Australian Securities and Investments Commission pursued the major bank in 2023 after it was found to have failed to respond to more than 200 online hardship requests from customers over the previous six years.
Federal Court judge Tim McEvoy found the bank's conduct was not deliberate, although it occurred over the lengthy period.
The requests were made by customers of Westpac and its subsidiaries St George Bank, Bank SA and Bank of Melbourne.
The customers were struggling to keep up with repayments on home loans, credit cards, personal loans, car loans and other responsibilities.
"I accept that Westpac's contraventions in this case were very serious," Justice McEvoy said.
ASIC said customers informed the bank they were experiencing financial hardship because of an inability to work, medical conditions or caring responsibilities.
But a deficiency with Westpac's online hardship notice process resulted in 229 customers not receiving a response to their requests within the required time of 21 days.
The decision was a reminder banks' obligations to support customers in need were not just a "nice-to-have", Consumer Action Law Centre chief executive Stephanie Tonkin said.
"We're not talking about a bank doing something out of kindness," she told AAP.
"We're actually talking about legal requirements to support customers who are experiencing financial hardship."
Banks were in a unique position to offer support, often as a last option for people in difficult life circumstances, Ms Tonkin said.
"Customers reaching out for help were ignored and that can be a life-changing circumstance for someone," she said.
"People often won't reach out multiple times, people in real need."
Westpac argued it should only pay a $10 million fine, while the regulator pushed for a $30 million penalty.
While the amount would not significantly burden the banking giant, it was still significant in the circumstances, Ms Tonkin said.
"The judge has ordered Westpac pay more than double what Westpac proposed ... I do think this sends a signal about the court's view of the nature of the bank's conduct."
A Westpac spokesperson acknowledged the court's decision and apologised to customers affected.
"We are deeply sorry we let them down," they said in a statement.
"We self-reported these issues in 2022 and 2023 and to put things right, we've completed a remediation program including refunds of fees and charges, debt waivers and payments for non-financial loss.
"We have strengthened our processes and upgraded our online hardship systems to meet the standards our customers deserve."
Westpac said it received about 695,000 requests for hardship assistance between 2017 and 2023 and took its obligations seriously.
Justice McEvoy also ordered Westpac to cover the regulator's legal costs.
"While the contraventions were not suggested to be deliberate and arose instead from inadequate systems and operational failures, I have accepted that they were grossly negligent," he said.
ASIC deputy chairwoman Sarah Court said the penalty sent a clear message to Westpac and other lenders about their responsibilities to customers.
"Westpac failed the very customers who needed help when they needed it most," she said.
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