During the third day of the seventh round of hearings, Westpac CEO Brian Hartzer was asked about Westpac’s approach to conduct and compliance risk in relation to two case studies that came out of the first round of hearings relating to credit card limit increases.
Senior counsel assisting Michael Hodge brought back into focus a case study concerning “unsolicited credit card limit increase offers being sent to selected Westpac customers” and how the bank engaged with the financial services regulator, ASIC, relating to the issue.
In September 2012, ASIC wrote to the Australian Bankers Association setting out its views as to how the responsible lending requirements related to credit limit increases and how they are applied.
This largely centred on making fresh inquiries into a customer’s income and employment status when offering credit card limit increases. However, Westpac previously used system-generated information about customers when making credit limit increases in some circumstances, and offered bank-initiated credit increases (rather than customer-requested increases).
Mr Hartzer suggested that Westpac did not agree with ASIC’s recommendation to stop offering automated credit card limit increases.
The senior counsel assisting asked: “Westpac considered the points that were made by ASIC in September of 2012 but decided not to make any change to its process?”
“That’s right,” Mr Hartzer said.
The Westpac CEO then said that he did not believe that there was any problem under the responsible lending obligations with how it was dealing with credit limit increases (which was different from the view of ASIC) and that it had continued making the credit limit increase offers in the way that it had been doing [until 2014].
However, Westpac no longer offers bank-initiated credit limit increases and now requires them to provide information and evidence about their employment and income status.
Mr Hartzer suggested that the bank and ASIC had different interpretations of the law.
“[T]he design of the process was very explicitly designed to try to meet the responsible lending legislation. We had, in the end, a difference of opinion with ASIC as to what specific measures were required.”
The commission asked the CEO: “[W]hen it comes to matters of the — things like the application of the responsible lending obligations — there can be differences of opinion as to how the law applies… or what the law is and how it applies?”
Mr Hartzer affirmed that this was the case and agreed that this difference of legal reading could “carry with it the risk for Westpac that it will contravene the law”.
He conceded the point and added that “the process of managing compliance risk was not as robust as it should have been”.
[Related: Federal Court rejects Westpac $35m penalty]
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.