ASIC's responsible lending appeal dismissed

by Madison Utley26 Jun 2020

ASIC’s appeal looking to overturn the dismissal of its responsible lending case against Westpac Group, which was handed down in the second half of 2019, has been today rejected by the court.

In September of 2019, ASIC filed the appeal with the Full Federal Court of Australia after its case against Westpac was dismissed during court proceedings the month before – a significant blow as it was the first legal test of the 2009 NCCP Act and the regulator lost on both the facts of the case and its interpretation of the law.

At the time, Commissioner Sean Hughes explained ASIC’s decision to appeal the ruling.

“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 said.

ASIC originally commenced federal proceedings against Westpac in 2017, alleging the major bank had breached responsible lending laws while assessing the suitability of nearly 262,000 home loans for customers between December 2011 and March 2015.

The case went to trial in May, after Justice Perram rejected a $35m fine agreed upon between ASIC and Westpac the previous November. Perram said more information was needed to generate an appropriate penalty.

Then on 13 August, Perram dismissed ASIC’s case against the major bank “on facts”, while maintaining that borrowers can cut down on “steak and shiraz” when they take on new financial commitments – the line which so captured the attention of the media.

In handing down the ruling, the Justice stressed that the NCCP Act requires a credit provider to ask itself only whether “the consumer will be unable to comply with the consumer’s financial obligations under the contract” or, alternatively, whether the consumer “could only comply with substantial hardship.”

"The Act is silent on how a credit provider is to answer,” he explained after concluding that Westpac had suitably regarded its customers' declared living expenses.

Notably, he also insisted that the discussion around the HEM benchmark was “of marginal relevance” to the outcome of the trial, despite the royal commision having triggered intense scrutiny of the banks' reliance on such benchmarks.