ASIC has announced that it has commenced civil penalty proceedings in the Federal Court against Westpac Banking Corporation (Westpac) for a number of contraventions of the responsible lending provisions of National Consumer Credit Protection Act 2009 (Cth) (the National Credit Act).
ASIC alleges that in the period between December 2011 and March 2015 Westpac failed to properly assess whether borrowers could meet their repayment obligations before entering into home loan contracts.
Specifically, ASIC alleges that Westpac:
- used a benchmark instead of the actual expenses declared by borrowers in assessing their ability to repay the loan;
- approved loans where a proper assessment of a borrower’s ability to repay the loan would have shown a monthly deficit;
- for home loans with an interest-only period, Westpac failed to have regard to the higher repayments at the end of the interest-only period when assessing the borrowers’ ability to repay.
According to Westpac, the court action does not concern Westpac’s current lending policies or practices. Westpac says that of the seven specific loan applications ASIC references in its proceedings, all loans are currently meeting or ahead in repayments.
Westpac disputes ASIC’s claims that Westpac relied solely on the HEM benchmark and did not have regard to a customer’s declared expenses in its unsuitability assessment.
ASIC is also investigating other bank home loan lenders (ABC).
ASIC says that responsible lending is necessary as providing disclosure to consumers won’t always be enough. Regulatory Guide 209 sets out ASIC’s views on lenders’ obligations to lend responsibly and carry out a credit assessment for each borrower. It says that credit risk assessment is not the same as responsible lending.
Watch our video on verifying expenses under the responsible lending obligation.
APRA guidance on residential mortgage lending credit assessment
