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Major bank agrees to pay $35m for NCCP breaches

A big four bank has admitted to breaching responsible lending obligations in its issuance of home loans and has agreed to pay a $35-million civil penalty.

The Australian Securities and Investments Commission (ASIC) has reported that Westpac has admitted to breaches of responsible lending obligations when issuing home loans to customers, and has agreed to pay a $35 million civil penalty to resolve Federal Court proceedings under the National Consumer Credit Protection Act 2009.

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

  • did not have regard to consumers’ declared living expenses when assessing their capacity to repay home loans, and instead used a benchmark (the Household Expenditure Measure); and
  • failed to use the higher repayments at the end of the interest-only period when assessing a consumer’s capacity to repay the loan, for home loans to owner-occupiers with an interest-only period. For example, for a loan of $500,000 at 5.24 per cent with a term of 30 years and a 10-year interest-only period, the assumed repayment using the incorrect method is $2,758 per month, whereas the actual repayment after the expiry of the interest-only period using the correct method is $3,366 per month.

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.


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 Household Expenditure Measure.

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.

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

ASIC noted that if approved by the Federal Court, it will represent the largest civil penalty awarded under the National Credit Act.

ASIC added that Westpac admitted to contraventions of the National Credit Act and the parties filed a Statement of Agreed Facts and joint submissions as to the appropriate penalty. The regulator noted that Westpac will also pay ASIC’s litigation and investigation costs.

Following the announcement, ASIC chair James Shipton said: “This is a very positive outcome and sends a strong regulatory message to the industry that non-compliance with the responsible lending obligations will not be tolerated. Responsible lending in the home lending market is absolutely vital to consumers, banks and our economy.

“This outcome, and ASIC’s actions in relation to responsible lending, reinforce that all lenders must obtain information from individual borrowers about their financial situation to ensure that they can properly assess the ability of the customer to repay the loan.

“Lenders must then verify the information to ensure that it is true, and then assess whether the loan is unsuitable for the borrower. Taken together, these responsible lending obligations are a cornerstone protection for both borrowers and lenders.”

Mr Shipton concluded: “This outcome is a warning to all lenders that they must comply with the responsible lending obligations. If they do not, ASIC will take action to enforce the law.”

Westpac’s chief executive, consumer bank, George Frazis, said: “Westpac takes its responsible lending obligations very seriously and this action does not relate to our current lending practices. We upgraded our credit assessment in 2015 and continue to thoroughly assess home loan applications.

“From a credit quality perspective, loans approved under these circumstances have continued to perform similar to, or better than, the rest of the group’s home loan portfolio. Nevertheless, Westpac has committed to proactively monitor the active loans and to provide tailored hardship assistance if necessary.

“Our June quarter disclosures showed the strength of Westpac’s mortgage book with 90+ day delinquencies in Australia at 0.72 [of a percentage point].” 

[Related: Westpac hikes home loan rates]

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