HEM battle rages on in Federal Court

The Australian Securities and Investments Commission (ASIC) has filed an appeal with the Full Federal Court of Australia against the Honourable Justice Nye Perram’s decision to dismiss its case against Westpac, which related to 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.

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

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”).

Following his review of the case, Justice Perram 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.

However, ASIC commissioner Sean Hughes said ASIC’s decision to appeal the verdict has been made to address “uncertainty” caused by Justice Perram’s decision.  

“The Credit Act imposes a number of legal obligations on credit providers, including the need to make reasonable inquiries about a borrower’s financial circumstances, verifying information obtained from borrowers and making an assessment of whether a loan is unsuitable for the borrower,” he said.

“ASIC considers that the Federal Court’s decision creates uncertainty as to what is required for a lender to comply with its assessment obligation, nor does ASIC regard the decision as consistent with the legislative intention of the responsible lending regime."

He concluded: “For those reasons, ASIC will appeal to the Full Court of the Federal Court.”

In response to ASIC's announcement, Westpac has stated: "Westpac acknowledges that today ASIC has filed an appeal with the Full Federal Court in relation to proceedings against Westpac regarding its responsible lending obligations."

[Related: ASIC to ‘review’ Federal Court’s HEM verdict]