A federal court has rejected a $35million fine for one of the four major banks after it admitted breaking responsible lending laws.
Last year the Australian Securities and Investments Commission (ASIC) began proceedings against Westpac in relation to its use of the Household Expenditure Measure (HEM) when assessing home loans.
ASIC argued the bank failed to conduct proper assessments to ascertain whether borrowers could afford to repay their loans.
The $35m penalty was a negotiated settlement between the two parties after it admitted to using the HEM to assess borrowers’ living costs.
ASIC alleged the bank approved around 50,000 home loans based on a HEM benchmark, even though expenses were presumably higher.
Among the explanations of the reasons behind the decision to refuse the penalty, Justice Nye Perram said the court had been asked to determine whether Westpac was in contravention of Section 128 of the National Consumer Credit Protection Act 2009.
Justice Perram said this section merely prohibits the making of a credit contract where an assessment has not been carried out. Regardless of the bank using the HEM benchmark, an assessment was in fact carried out.
Justice Perram also said that although both parties had agreed on the sum, “the theoretical maximum penalty is therefore either $1.1 million or $1.7 million per contravention” depending on the dates of contravention.
Justice Perram said because the parties could not agree on what contravened the section, it was difficult to “judge the appropriateness” of the $35m figure.
More detail to follow.