A judge has ruled on Westpac’s alleged breach of responsible lending laws while assessing the suitability of nearly 262,000 home loans for customers between December 2011 and March 2015.
The Australian Securities and Investments Commission (ASIC) had accused the major bank of breaching the National Consumer Credit Protection Act 2009 (the Act) when it assessed the loans through its automated system, relying solely on the benchmark household expenditure measure (HEM) rather than customers' declared living expenses.
Justice Nye Perram dismissed ASIC’s case against the major bank “on facts.”
The case went to trial in May, after Justice Perram rejected the $35m fine agreed to between ASIC and Westpac, saying more information was needed to generate an appropriate penalty.
In the ruling handed down today, Justice Perram said that the 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 judge clarified that ”the Act is silent on how a credit provider is to answer” those questions, and found that Westpac had suitably regarded its customers' declared living expenses.
Further, he said that the discussion around the HEM benchmark was “of marginal relevance” to the outcome of the trial.
“ASIC’s case did not turn on the fact that Westpac had used the HEM benchmark, but instead on the alleged fact that it did not use any of the consumer’s declared living expenses in answering the [two required questions]," he explained.
"Indeed, ASIC accepted that it was lawful for Westpac to use the HEM benchmark to answer those questions. What it could not do was to answer them without taking into account any of the consumer’s declared living expenses."
The reliance on HEM benchmarks came under extensive scrutinisation during the royal commission. As such, the major banks are slowly transitioning to processes that provide more holistic suitability assessments.
Amidst the court proceedings with ASIC, Westpac updated its group credit policies “to enhance the way [it] captures customer living expenses, commitments, and verify documentation.”
A Westpac spokesperson said, “We recognise sometimes it can be difficult for customers to provide a complete picture of their expenses and the enhancement of our expense categories means our staff and brokers have the opportunity to prompt customers to remind them about particular expenses they may have forgotten.”