Responsible lending obligations form a “cornerstone protection” for lenders and borrowers, but it was a protection that went unobserved for around 100,000 Westpac borrowers between December 2011 and March 2015, the Australian Securities and Investments Commission (ASIC) said on Tuesday.
According to an ASIC release, Westpac has admitted to breaching its responsible lending obligations when providing home loans and will pay a $35 million civil penalty.
The announcement pre-empts a three-week trial due to begin on Monday.
However, both ASIC and Westpac told the Federal Court that the bank had failed to satisfy its responsible lending provisions as its automated decision system failed to account for consumers’ declared living expenses when measuring their ability to meet repayments, instead relying on the household expenditure measure benchmark.
Additionally, Westpac admitted its system failed to account for the higher repayments demanded at the end of an interest-only period when assessing customers’ ability to pay their mortgages.
These breaches meant about 100,000 loans were granted using expense information that was lower than consumers’ actual expenses, with ASIC finding that of these, 10,500 loans should not have been automatically approved.
The watchdog noted that if approved by the Federal Court, this action will be the largest civil penalty awarded under the National Credit Act.
“This is a very positive outcome and sends a strong regulatory message to industry that non-compliance with the responsible lending obligations will not be tolerated. Responsible lending in the home lending market is absolutely vital to consumers, banks and our economy,” ASIC chair James Shipton said.
“This outcome, and ASIC’s actions in relation to responsible lending, reinforce that all lenders must obtain information from individual borrowers about their financial situation to ensure that they can properly assess the ability of the customer to repay the loan.
“Lenders must then verify the information to ensure that it is true, and then assess whether the loan is unsuitable for the borrower. Taken together, these responsible lending obligations are a cornerstone protection for both borrowers and lenders.”
No one was hurt: Westpac
Responding to the settlement, Westpac added that ASIC has not alleged that customers suffered any specific loss or damage.
"From a credit quality perspective, loans approved under these circumstances have continued to perform similar to, or better than, the rest of the group’s home loan portfolio. Nevertheless, Westpac has committed to proactively monitor the active loans and to provide tailored hardship assistance if necessary," Westpac consumer bank chief executive George Frazis said.