Powered by MOMENTUM MEDIA
Powered by MOMENTUM MEDIA
subscribe to our newsletter

ASIC to 'review' Federal Court's HEM verdict

The Federal Court has ruled in favour of Westpac in a responsible lending “test case” against the corporate regulator. 

Federal Court Justice Nye Perram has dismissed the Australian Securities and Investments Commission’s case against Westpac regarding alleged breaches of responsible lending obligations in its issuance of home loans through the use of the Household Expenditure Measure (HEM) benchmark. 

In September 2018, Westpac admitted to breaches of responsible lending obligations when issuing home loans to customers and agreed to pay a $35-million civil penalty to resolve Federal Court proceedings under the National Credit Act.

ASIC and Westpac jointly approached the Federal Court, seeking orders that the bank contravened the responsible lending provisions of the National Credit Act because of its automated decision system.

ASIC reported that the litigation related to Westpac’s home loan assessment process during the period December 2011 and March 2015, during which approximately 260,000 home loans were approved by Westpac’s automated decision system.

Advertisement
Advertisement

Further, for approximately 50,000 home loans, ASIC noted that Westpac received, and did not use, consumers’ actual expense information that was higher than the HEM.

Additionally, ASIC reported that for approximately 50,000 home loans, Westpac used the incorrect method when assessing a consumer’s capacity to repay a home loan at the end of the interest-only period.

The regulator contended that of the 100,000 loans, Westpac should not have automatically approved approximately 10,500 loans.

Had the civil penalty been approved by the Federal Court, it would have been the largest civil penalty awarded under the National Credit Act.

However, the Federal Court was tentative in its approach to the matter.

PROMOTED CONTENT


Justice Nye Perram had sought a friend of the court to consider whether the Westpac case even constituted a breach of the NCCP (reportedly stating that “there is no fact before [him] that any unsuitable loans were made”).

Justice Perram has now judged that a lender “may do what it wants in the assessment process”, noting that other provisions of the NCCP impose penalties if lenders make unsuitable loans as a result of that process.

Justice Perram also found that Westpac did take account of consumers’ declared living expenses, pointing to another rule in Westpac’s system, which compared declared living expenses to income was a measure of suitability.

Westpac has welcomed the Federal Court’s judgement, with the chief executive of the bank’s consumer division, David Lindberg, describing the decision as a “test case” relating to the broader lending industry’s responsible lending practices.

“Westpac has always sought to lend responsibly to customers and takes its lending obligations very seriously,” he said.

“This is an important test case for the industry, and we welcome the clarity that today’s decision provides for the interpretation of responsible lending obligations.”

In response to the verdict, ASIC commissioner Sean Hughes has stated that the regulator would “review the judgement carefully”, given the potential precedent it may set for serviceability assessment practices in the mortgage industry.  

“ASIC took on the case against Westpac because of the need for judicial clarification of a cornerstone legal obligation on lenders. This is why ASIC refers to this case as a ‘test case’,” he said.

“As a regulator, it is our role to test the law.

“The obligation to assess applications builds on the obligation on banks to make inquiries about a borrower’s financial circumstances and capacity to service a loan and to verify the information that borrowers give banks.”

 [Related: ‘Belt tightening’ provision rejected at ASIC hearing]

ASIC to 'review' Federal Court's HEM verdict
mortgagebusiness

Charbel Kadib

Charbel Kadib is the news editor on the mortgages titles at Momentum Media.

Before joining the team in 2017, Charbel completed internships with public relations agency Fifty Acres, and the Department of Communications and the Arts.

You can email Charbel on: This email address is being protected from spambots. You need JavaScript enabled to view it.

Latest News

Sentiment in the housing sector has remained negative but has been propelled by the HomeBuilder scheme, which has so far received 11,367 ap...

The central bank has updated its monetary policy outlook, with governor Philip Lowe touting the benefits of further adjustments to the cash ...

NAB has announced that it will open a new waitlist for the FHLDS New Home Guarantee and start accepting conditional approval applications fr...

FROM THE WEB

Join a group of highly informed brokers.

Broker Pulse, a community-driven knowledge base of lender performance Reveal exactly which lenders are making life easiest for brokers and their clients by taking this monthly survey and joining a group of highly informed brokers who leverage these insights every month.

JOIN NOW
podcast

LATEST PODCAST: Victoria’s surprising appetite for new homes

Do you expect to see strong uptake of the HomeBuilder scheme?

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.