Westpac win responsible home loan case taken by ASIC

Allegations from the corporate regulator that Westpac breached its responsible home loan lending obligations almost 260,000 times have been dismissed by the Federal Court.

The Federal Court dismissed ASIC's responsible lending case against Westpac.

ASIC had alleged that Westpac breached responsible lending laws using an automated process that relied on the Household Expenditure Measure benchmark, rather than using each applicant's individually assessed living costs.

Last September Westpac agreed to pay a $35 million settlement to ASIC in admitting breaches.

But the court rejected the settlement after the parties did not agree on what the responsible lending laws required.

Justice Perram dismissed ASIC's case against the bank today, awarding costs against the regulator.

The parties had previously jointly approached the Federal Court seeking orders that Westpac 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

• for home loans to owner occupiers with an interest-only period, 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 example, for a loan of $500,000 at 5.24% 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.

The litigation related to Westpac’s home loan assessment process during the period December 2011 and March 2015.

For 50,000 home loans, Westpac received, and did not use, consumers’ actual expense information that was higher than the Household Expenditure Measure.

For 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.

Of these 100,000 loans, Westpac should not have automatically approved approximately 10,500 loans.